I'm moving this topic over from Pailin's Trading Corner (http://www.tfmetalsreport.com/forum/pailins-trading-corner/242). Some questions came up about forex and spot metal trading. I just opened a forex account, but I only trade currency pairs. I'll try to summarize the questions and the answers I gave here. I know there are some seasoned currency traders *cough* humahuaca *cough* so maybe they will stop by.
Do the forex people allow leverage??? In other words can I buy 100 ounces of gold for less than the price. $150,000 approx is a lot of money. I want leverage. On Comex you can buy that for under $6000.
When you buy on the forex do you buy a full 100 ounce contract or do you buy any unit you want. and do you get leverage like on the comex or do you have to pay full price like withETF's.
So for me to trade without leverage then how much money do I need in the account to trade.
My answers, in a rambling format, cut and pasted from other posts:
Minimum account sizes: it's going to depend on the broker, and also the smallest lot size that broker allows. For example, if you're broker lets you trade a minimum of 1 oz of silver at spot price, the minimum account size is pretty small... but so are your gains. The more the better, but like I said it depends on the broker.
Picking a broker: All serious forex brokers offer demo or paper trading accounts, some unlimited, some for a set time period. There should never, ever be an obligation attached. People here speak well of Oanda, but I haven't used them. If I were going to open a forex account outside of my regular broker I would look at Oanda or Dukascopy. You should be able to test drive either of them. forex.com is very popular, but a lot of people hate them.
When I was researching forex, I found this site very helpful, it has lots of user reviews for various brokerages: http://www.forexpeacearmy.com/
Experience is the best teacher. I strongly recommend paper trading. I personally useAmeritrade/thinkorswim, they don't have the best forex platform but I can use a single broker for equities, options and forex.
Staying up to speed with current events: for news websites with a forex emphasis, I like
Using leverage and the psychology of trading:
Leverage works both ways. US firms are limited by the Frank-Dodd bill to 50x leverage, which should be plenty. Some firms outside the US offer up to 200:1 leverage (I think one allows 500:1).
With forex, or futures, a sudden movement in the wrong direction will use up all of your available margin, even if the condition lasts for only a tick. So a flash crash will wipe you out.
Also, when you buy on forex, the spread (difference between the buy price and sell price, which is the broker's fee) will put you immediately in the hole.
In sum, leverage is not something to start out with. I got much better at trading currency pairs on forex once I started using no leverage (all my positions were fully backed by the equity in my account). Even though I was only using 2x leverage, it was causing me to make bad decisions. I went though the same thing when learning options and figured I had fear/greed under control. Nope. So start small, go for a base hit or a walk or a hit by pitch, not a ten bagger.
How did I do today? Okay, nobody asked but I was short the EUR/USD in $10k increments from yesterday and I'll make at least $600.
Ask away, or teach.