Before deciding whether to use a Foreign Currency EA you better know the basics, otherwise you can quickly lose all your capital. In this blog we’ll go through some of the basics for the beginner, and even the more advanced trader might learn a thing or two.
First thing - You have to choose a broker/platform. There are many brokers in the market, You find them on the internet,(do Google/Yahoo search - Forex Brokers) and trade through them. Pick a big, regulated company as your broker, so that one morning you won’t wake up to find that your firm has gone bankrupt, together with your money. It is preferable, to pick a broker who uses a “metatrader 4″ platform. Since it has become popular lately, many Forex autopilots are written for it. Some brokers offer free money, but that doesn’t mean too much, as you can’t redeem it, but it lets you enlarge your margin.
Pick a broker that gives a margin of at least 100:1 (not more than 400:1). Since we’ll recommend later on working with intraday trades, therefore its important to pick a broker who uses tenths of pips. This decreases the spreads, which is meaningful in intraday trading. Lastly, start to work with a demo platform. Mistakes made by unskilled fingers can cost a lot of money.
Next decision to make - which currency pair to trade. Trade the majors, i.e. usd, eur, jpy, gbp, chf, and their crosses. Nothing exotic - they may defy the rules. Try to trade with a relatively volatile currency pair. This is not important if you intend to let a position hold for a few months. But how much can you earn if for example, you bought eur/usd and it went up 100 pips in your direction over a few months? 30 pips a month is not really earning well. It is far better to make a few trades a day, gaining on each one even ten pips. Therefore, if your currency pair isn’t volatile enough you might end up staring at your computer all day. Volatility can change by the day or week, so you should check it before trading, but usually the eur/usd, eur/gbp, usd/jpy pairs are volatile enough.
Third point to consider- how large to trade (how many lots)? The size of your trade should depend upon 1) the amount of your trading capital 2) the % of your capital that you are willing to risk on a single trade and 3) the size of your stop loss, which we’ll discuss later. Most traders risk about 2-3% of their capital, but you should never be more aggressive than 5% of your capital - otherwise a few consecutive losses, and you are out of business. For example, if your capital is $1000, and you want to risk no more than 5% which is $50, and you decide that for this trade 20 pips stop loss is sufficient, then you’ll open a position where each pips is worth $2.5 ($50 / $20).
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