Want to learn forex? There are lots of ways.

It isn’t hard to learn forex, but it does take time and dedication. The principles involved are fairly easy from a mathematical standpoint, and the basic way that the system works is straightforward enough once it’s been explained to you. But the details and nuances of the market can make it daunting.

The first step as you set out to learn forex should be to do some basic reading on how the foreign exchange market works. The foreign exchange Wikipedia article is good basic reading, and there are plenty of Web sites that offer overviews to help you learn the fundamentals.

Plenty of books have been written on the topic, some of which will help you and some of which just want your money. Try the public library first: Books are free, and if they’re in the library, they were probably published by legitimate publishing houses with legitimate editors and researchers. The information will be more reliable than something you get from a Web site where a guy wants you to buy his e-book.

After that, you have a number of options, all of which will help in different ways. You can make your choice depending on what your own learning process is usually like, whether you’re a visual learner or prefer written instruction, for example.

There are many forex seminars held in major cities, sometimes for free. In these, experienced traders offer tips and strategies to new traders trying to learn forex for the first time.

There are also online courses available, which you can take at your own pace over the course of several weeks. These almost always cost money, and the quality varies. (Remember, you usually get what you pay for.) Some of these courses come from brokers who want you to learn the system so you can start trading with their companies, so it’s in their own best interest to train you well.

You should also consider a demo account, which can help you practice through a realistic simulation of currency trading. You get the full experience of trading without any of the financial risk.

Many firms also offer mini forex accounts, which are real accounts with real money, only with much smaller amounts. For example, instead of a minimum starting investment of $1,000, the minimum might be only $100. This lets you learn forex through actual hands-on practice, but with a risk that is much smaller than usual. You can quickly see if you’re cut out for trading or if it’s just not in your constitution to handle the emotional roller coaster.

Once you learn, forex can be fun and exciting, not to mention financially lucrative. It is necessary to learn, though, and not just jump in blindly.

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Let a professional do all the work for you with a managed forex account

Because forex trading is such a complicated business, there are many systems in place to help new or cautious traders get involved without going bankrupt. There are mini accounts that let you invest only small amounts of money, and there are even automated accounts that let a computer program do it all for you. And in between those extremes is the managed forex account, which gives you full access to the market but gives you an adviser to help you navigate it.

A managed forex account is perfect for someone with no experience, or limited experience, in the forex market. It’s also good for someone who wants to invest but doesn’t want to go through all the studying and training necessary to do a good job of it himself. Furthermore, a managed account is a godsend if you want to invest but simply don’t have the time or the inclination to watch the market 24 hours a day.

Managed accounts always require a minimum investment of at least $10,000, and some have the minimum set as high as $250,000. This makes it off-limits to many individuals, especially considering you never want to invest more than you can afford to lose. It is mostly businesses and corporations that use managed accounts, though more and more well-heeled individuals are taking advantage of it in the 21st century.

The reason for the high minimum investment is that a managed account has to have someone managing it -- an actual human being, that is, not a computer program. If the minimum investment were more reasonable, too many people would want managed accounts, and the managers wouldn’t be able to handle their client load.

In general, a managed account is best for long-term investors. Someone wanting to get into the forex market, make a lot of money through aggressive, risky ventures, then get out again, would not benefit from a managed account. Most managers favor a conservative, slow-growth strategy, usually suggesting that investors stay with the program for two years to show real profits. (Most systems let you withdraw your money and quit whenever you want, though, with no penalties for doing so.)

There is a fee for managed accounts, of course; nothing comes for free. Usually the fee is based on the performance of the market, with the manager taking a percentage of your net profits each quarter. This fee is well worth it for many individuals, though, as they find a managed account gives them peace of mind with regard to where their money is being invested and what kind of return it’s yielding them.

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If you’re just getting started, a mini forex account can be your training wheels

For investors just starting out in the complicated, fast-paced world of foreign exchange, the whole thing can be very daunting, not to mention expensive, if the investor’s rookie mistakes lead to some bad trades. To help people get their feet wet without losing their shirts, many brokers offer what’s known as a mini forex account.

Mini forex works exactly the same as regular forex trading. The only difference is that the investor only has to put a small amount of money into it to begin with -- as low as $100 or $200. (Regular forex accounts usually require 10 times that amount.)

The advantage of a mini forex account is that it lets you learn the ropes of the forex market through hands-on experience -- books, lectures and demos can only teach you so much -- without risking more than a couple hundred dollars of your own money. All trading is risky in that it carries with it the possibility of failure. But with mini forex trading, the most you can lose is the $100 or $200 you initially put into it.

There are psychological benefits with mini forex trading, too. One of the reasons people lose money in the market is that they hang on to losing prospects longer than they should, hoping the trend will reverse itself and they’ll win everything back -- and then the trend doesn’t reverse itself until after the investor has already lost everything. Human emotion gets in the way of making sensible trades.

Mini forex carries the same risk, of course -- but since the amounts are so much small, the mini forex trader isn’t losing much if he does hang on to a loser longer than he should. It’s a sort of practice area to let the investor train himself to make good decisions. Once he’s mastered the art, he can take off the mini forex training wheels and start investing much larger amounts.

Another benefit of mini forex trading is that it can be utilized by people who don’t want to make forex trading their bread and butter but simply enjoy the thrill and competition of it. Forex trading can be fun, after all, but the fact that you’re playing with large sums of money can make it more nerve-racking than enjoyable. Mini forex accounts bring it back down to the level of enjoyment, like playing penny-ante poker with your friends. The game is the same, but the stakes are much lower, and thus the experience is less risky.

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Forex training is a must for anyone serious about turning a profit in the market

No matter how well you did in school or what kind of IQ you have, we all need specialized training in certain areas. The forex market is no exception to this. Forex training should be a prerequisite for anyone considering getting serious about trading world currencies for profit.

Is formal training truly necessary? After all, there are plenty of books and online articles on the subject. Wouldn’t it be enough to read them on your own and getting into the market without going through the hassle of official training?

Well, look at it this way. You could read manuals on how to fly a plane, but you probably wouldn’t want to try it for real without getting some hands-on training first in a simulator. By the same token, you shouldn’t jump into buying and selling currencies without getting some training first. You might be able to manage successfully without it, but you’ll be so much better prepared with it.

Forex is a complicated, highly nuanced financial area, and the people who are experts in it are aware that the average person knows almost nothing about it. To help share the wealth of information, the experts have devised a number of training systems on the Internet and elsewhere.

Many forex training systems offer simulators or practice accounts. In these, no real money is involved. It’s pure simulation, giving new traders an up-close-and-personal look at the market without any financial risk. In these demos, you get all the charts, figures and other data you’d get if you were doing it for real. It’s excellent practice for the real thing.

Forex training is seldom free, however. Depending on the type and depth of training, it can be anywhere from $50 to several hundred dollars. How much training you need depends on how serious you are about joining the marketplace. If you truly want to make money buying and selling currencies, it might be wise to get as much training as possible. On the other hand, if you intend to do it as a hobbyist, and if you limit your investments up front to adjust for the learning curve, you might do well enough with just the basic training.

Either way, you owe it to yourself to follow the training lessons carefully. Learn as much as you can from the resources available to you. It will help you turn a profit when you get into trading and help you minimize your financial losses.

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Using forex signals to navigate the currency market

There are dozens of world currencies being traded around the clock on the foreign currency exchange, and no one can possibly monitor them all at once. That is why many traders rely on forex signals to keep them apprised of movement in the market.

Many brokers and other forex-related businesses offer forex signals to subscribers. Forex signals are simply recommendations to buy or sell based on mathematical algorithms and professional know-how. Usually these signals include specific entry, stop and target levels. They might say something like, in essence, “Right now the EUR/USD bid is at 1.2529 and dropping. When it gets to 1.2465, sell.”

Forex signal providers usually charge for their service, sometimes as much as $100 a month. For this the subscriber gets 1-5 signals a day, sent via e-mail, text message or instant messenger. The trader is under no obligation to do anything with the information, of course. They are advisory in nature, and the trader is free to ignore them entirely if he wants to. But most traders generally go along with the advice that comes to them through forex signals. They wouldn’t pay for the service if they didn’t find the advice useful.

There are two schools of thought about forex signals. One says that you’re a sucker if you pay for them, with the reasoning that if the people behind them are so good at playing the market, why do they have to sell signals to make a living? The opposing point of view says that since signals require analysis and experience to create, why shouldn’t the people who distribute them get paid for their efforts?

If you do choose to pay for a signals service, you should get a trial membership first. Be wary of a service that won’t give you a free trial period before you start paying, or that only offers a trial period of a couple days. (What do they have to hide? If their service is good, showing it to you for a week or two will only help sell it to you.)

On the other hand, one maxim usually holds true: You get what you pay for. Sites that offer free forex signals may not be as reliable or experienced as the professional sites. And in either case, you shouldn’t blindly follow the advice of forex signals. A smart investor will look at the trends himself to make sure he agrees with the signals he received. The decision to buy or sell is ultimately his, after all.

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There’s money to be had in forex trading, but it’s risky for a first-time investor

Forex trading is done on a much greater scale than any other kind of market in the world. Some 1.9 trillion dollars are handled every single day. About 73 percent of all forex trading is done by 10 international banks with names you’re familiar with: Merrill Lynch, Citigroup, and so forth. National banks and other financial institutions account for another chunk of forex trading, and transactions by “day traders” -- regular individuals, people like you and me -- account for only 2 percent of all trading.

Nonetheless, many average investors do try their hand at forex trading, and there are many financials institutions who handle such transactions. It’s known as “retail forex,” and it’s handled much the same way that day trading of stocks is handled.

The downside is that unlike the stock market, the forex market is not particularly well regulated, and people inexperienced with it can be taken advantage of. The U.S. Commodity Futures Trading Commission (CFTC) gives several bits of advice for amateur forex traders. Among the CFTC’s tips:

- Avoid companies that predict or guarantee large profits, or that promise little or no financial risk. There is ALWAYS a financial risk in forex trading, and no one can guarantee profits when it comes to speculative endeavors.

- If someone won’t give you his background, don’t deal with him. Likewise, always check out a company’s track record before doing any trading with them.

- The Internet is a haven for shady types. Be wary of anyone wanting you to send cash.

- Above all, remember that if an opportunity sounds too good to be true, it probably is!

There are plenty of honest and reliable forex trading firms out there, including ones that operate online. But even if the trading company is legitimate, there are still risks inherent in trading. Because currency rates can fluctuate for such a variety of reasons, it’s difficult to predict what investments to make. Even seasoned professionals get blindsided sometimes.

In short, forex trading can be lucrative, but only if you know what you’re doing. Before embarking on any investing, study the details of how the market works, what causes fluctuations, how to interpret financial indicators, and all the other ins and outs of the market. Forex trading isn’t something to be entered into lightly. There is much potential for profit, but there is even greater potential for loss, both at the hands of unscrupulous trading firms, and of your own inexperience.

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Forex software can help investors make wise decisions

One of the unique things about the forex market as opposed to markets like the New York Stock Exchange is that it runs 24 hours a day. The forex market covers the entire world, all 24 time zones, so no matter what time it is, currency trading is taking place.

Because of this, many traders have found it helpful to have forex software on their computers. These programs enable users to stay informed about the very latest prices and to buy and sell currencies 24 hours a day.

Forex software also helps the online firms that deal in retail forex trading. Without the software, customers would have to log on to the site to conduct their transactions. But with the software installed on their computers, customers can handle their buying and selling without having to log in and potential overload the company’s server.

Most retail forex companies offer some kind of software for their clients to use, and most programs are about the same. They give up-to-the-minute values of currencies, allow customers to make transactions, and provide for transferring balances. Essentially, this software lets you do the things you once had to do online without actually having to log in to a Web site.

There are also third-party companies that offer forex software, programs that aren’t pegged to a particular retail trader but that offer users a way of staying informed and conducting business. Many of these programs also give tutorials and practice runs, to help new investors learn the ropes before getting into the real thing. Such practice is extremely valuable, as forex trading is complicated and can be perilous to a first-time trader.

Another advantage of forex software is that many programs do analysis, too -- that is, they’ll look at the data over a specified period of time and identify trends and patterns. Have certain countries’ currencies been steadily declining lately? Does one currency habitually grow stronger at a particular time every year? Will the U.S. dollar be stronger or weaker right around the time of an election?

All of this data can aid you, the investor, in deciding which currencies to buy and sell. Nothing is certain in speculative markets like forex, because there are simply too many factors and variables that determine exchange rates from day to day. But forex software can help you make informed decisions, which is invaluable to an investor in a tumultuous marketplace.

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Do you need to buy a forex system? Depends: Do you like being taken advantage of?

Any time there’s financial speculation involved, whether it’s gambling in Vegas or playing the stock market, people want to find a “system” that ensures success. The forex market is no different in that regard. But is there a forex system that will eliminate risk and guarantee profits for the investor? If you believe there is, we’ve got a bridge in Brooklyn we’d like to sell you, too....

You hear gamblers talk about their “systems,” but who are these gamblers? They’re never the high rollers, never the people who actually win a lot. They’re people who WANT to win and have convinced themselves they will if they adhere to their “system.”

The same is usually true of forex systems. The Internet is riddled with people selling some system or other. They’re are always very mysterious -- the sites never give any clues about what the system entails -- and they’re full of people giving breathless testimonials about how easy this system is, and how quickly they learned it, and how rich they are now.

No system can guarantee success. It’s impossible: The currency market changes every day, and while experts can use past history and external factors to make educated GUESSES as to how it will perform, they are still guesses. You can still lose your shirt, no matter what forex “system” you’re using.

Are all systems worthless? Not entirely. Some are no more than sound advice and common sense practicalities, probably gleaned from other books and Internet sites. In those cases, it’s not that the system is lousy; it’s that there’s no reason to pay for it when you could get the information it contains for free elsewhere.

You can usually tell that a forex system is suspect simply by the way it’s advertised. Web sites full of large fonts and exclamation points are a tip-off. So are sites full of grammar and spelling errors, written in an extremely unprofessional, too-casual style. You have to ask yourself: If this system is so foolproof, why haven’t the authors made millions with it? Why must they resort to selling a system ABOUT forex instead of engaging in it themselves? Or at the very least, why can’t they afford to pay a proofreader to give their site a once-over? With forex systems, as with everything else in life, remember: If it’s too good to be true, it probably is.

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Being a forex trader: Is it for you?

Being a forex trader is not for the faint of heart. The foreign exchange market is a fast-paced world that operates 24 hours a day, 5 and a half days a week. For some traders, fortunes are made and lost very quickly. Yet for someone with the right know-how and enough motivation and drive, forex trading can be rewarding both personally and financially.

How many people make their living as forex traders? It’s hard to say for sure, but we know the number is smaller than the number of stock traders. Most forex traders are actually international banks and other huge corporations; private citizens comprise only about 2 percent of the entire forex market.

Nonetheless, they are out there, and the number is growing. As the Internet and other technological advancements make it more accessible, the forex market becomes more manageable and more average citizens become traders. To begin with, most of these “day traders” keep their regular jobs and do forex as a side project. It’s notoriously difficult to make a living as a forex trader at the start, and most new investors find they must allow for the learning curve before they’re really ready to do it full-time.

Once a new trader gets the hang of it, buying and selling currencies with some degree of confidence and turning a profit, he may find that he can quit his day job and focus on trading full-time. There is certainly enough activity to fill a forex trader’s day, with news that could affect currency rates coming in almost constantly. A smart trader watches this information continually, almost obsessively, always on the watch for a sign that the time is right to buy or sell.

With home computers and high-speed Internet service available nearly everywhere, being a trader from home has become feasible. Some traders eventually become brokers, but the excitement -- and the potential profit -- lies in working for yourself. With a stock market, a bad day could mean disaster. But with the forex market, a bad day for one nation’s economy hardly matters, since there are still a dozen more strong, viable currencies to be traded. In that way, some consider being a forex trader slightly more stable than being a stock broker. Either way, there is always risk when money and speculation are involved, but with dedication and resourcefulness, you can make a handsome living as a forex trader.

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Online forex forums connect traders around the world

Most forex trading is done online, with investors looking at forex charts, considering trends, and making decisions. There’s very little interaction, even via the Internet, with other human beings. That’s one of the reasons that many traders also spend time in forex forums, chatting with other investors and sharing tips.

There are dozens of forex-related forums and message boards on the Internet. Some are tied to brokerage firms, while others are just freestanding forums on forex-related sites. Since the market is active 24 hours a day, you can usually count on the forums being busy at all hours too.

As mentioned, one of the reasons for visiting forex forums is simply psychological: Humans like to interact with other humans, especially when their day jobs require them to be alone with a computer for hours at a stretch.

Furthermore, there are a lot of emotions involved in trading. It’s real money, after all, and often large amounts of it. Online forums give traders a place to discuss the psychological effects of long-term trading, how it can become addictive and nerve-racking, and what impact it has on everyday life. You could think of message boards as being a sort of support group for traders, or the equivalent of the office water cooler.

Forex forums have more practical uses, too, of course. Traders find the tips and strategies offered by their fellow traders to be invaluable. Forums are often rife with people more seasoned and experienced than the average person, which benefits the newcomers. And many experienced traders enjoy visiting the forums because it gives them a chance to share their wisdom with others.

Forex forums are also useful for gauging the general mood of the marketplace. The charts and rates give you the cold, hard facts. But many times making a decision to buy or sell comes from the gut, based not just on the numbers but on how the market FEELS. The forums are a place to see what other traders are thinking right now. Do they feel optimistic? Pessimistic? Are things looking up? Are they discouraged? All of this information can be taken into account when considering a trade.

ForexFactory.com and ForexForum.net are two very popular, widely visited message boards. There are dozens of others out there, too. All forex forums give traders a chance to connect with their colleagues and to learn from one another.

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How to read a forex chart

The forex chart is among the most basic tools in a forex trader’s arsenal. Simply put, it is a graph of a particular currency pair’s performance over a given period of time. Reading forex charts is essential to a trader’s business, so it’s important to know how to read them and understand what they mean.

Every forex chart will be labeled with a currency pair: EUR/USD, USD/GBP, etc. Remember, all forex trading deals with different countries’ currency in relation to each other. The EUR/USD chart, for example, tells you how the euro and the U.S. dollar compare.

Along the bottom of the chart is the timeline -- 15 minutes, an hour, a day, a week, or some other period. Going up the right-hand side are incremental amounts. For the EUR/USD chart, the amounts might be 1.2531 at the bottom, going up to 1.2561 at the top. And of course the middle of the chart shows what position the EUR/USD pair held at what time.

The forex chart is useful because it shows in graphic terms how a currency pair is doing. You can see at a glance whether a currency is getting stronger or weaker, and you can act accordingly. Choosing the time frame helps you see very minor trends (in a 15-minute period, say) or more long-term ones (over the course of several days, perhaps).

You can find forex charts all over the Internet, on Web sites for forex brokers, tutors, and on other forex-related sites. Those are fine for glancing at trends now and then. But to be a serious trader, you need to have access to charts much more readily, without having to go to a Web site. That’s why trading software gives you forex charts, too (you need to have broadband Internet so you can be “always connected”). Obviously, if you’re going to be trading, you need to have convenient access to the very latest charts.

With dozens of world currencies, there are far too many possible currency pairs for anyone to keep track of mentally. Forex charts show at a glance what any currency pair is up to, and good software allows you to save multiple charts as “favorites.” Naturally you’ll want to keep an eye on the charts representing investments you’ve already made, and it’s smart to have a few additional ones saved, too, so you can watch for trends in currencies you haven’t traded yet. You never know when a lucrative new opportunity is going to be revealed.

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Finding a forex broker in a crowded marketplace

So you want to get involved in the foreign exchange market, or forex. You’re itching to trade one currency for another and make some profit. But you can’t just barge into Citigroup of Merrill Lynch and start throwing euros and yen around. To participate, you need a forex broker.

The preeminent forex broker for day traders (i.e., average Joes) is Advanced Currency Markets, or ACM. To many people, the Swiss company, founded in 2002, is synonymous with “forex broker,” trading about $70 billion a month.

There are dozens of other brokers, though, who service day traders. It’s done almost exclusively online, and in fact ordinary citizens rarely got involved with forex trading at all until the computer boom of the 1980s, and then exponentially more with the advent of the Internet in the 1990s. Since then, forex brokers have proliferated.

As you might expect, levels of reliability and competence vary from one broker to another. The Internet is rife with unsavory types seeking to take advantage of suckers, so you would do well to investigate thoroughly any broker you’re planning to use. Does their Web site look professional and reassuring, or is it riddled with dead links and spelling errors? Google the broker to see if they’ve been mentioned in news articles. Ask about their track record. And above all, avoid anyone who promises things that sound too good to be true, or who downplay the financial risk involved in forex trading.

Look for a broker that seems to genuinely want your business. Does the firm have customer service representatives available? Is there a phone number you can call to speak to a live person? The Web site should explain things clearly. If the site is full of language that seems designed to go over your head, look for a different broker.

If you set up an account with an online forex broker, it will work like this. First, you must apply for an account, which most brokers allow you to do online. This is to verify your identity and the validity of your bank accounts and financial records. Some brokers also require you to download their forex trading software, while others let you use whatever software you prefer. You will also have to transfer a minimum deposit to your account with your new broker. The minimum can be anywhere from $100 to $2,500.

Ideally, the broker you choose should offer service and support when you need it but should mostly simply stay out of the way and let you conduct your business. If you can find a forex broker who is professional and helpful, your experience in the forex market should be full of smooth sailing.

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Covering the basics of the forex market

The foreign exchange, or forex, market is relatively young, having begun in the early 1970s after the United States dropped the gold standard and national currencies started to fluctuate widely. For about 30 years prior to that, most nations had agreed to keep their currency values stable in relation to the U.S. dollar, making a forex market unnecessary. With that no longer the case, banks quickly realized that a profit could be made in “buying” currency when it was devalued and “selling” it after it strengthened, just like any other commodity.

Today, the forex market handles about $1.9 trillion in transactions every day, and it runs 24 hours a day, five days a week. (With nations around the world involved, it’s always daytime somewhere.) The most traded currencies are the U.S. dollar, the euro, Japanese yen, British pound, Swiss franc and Australian dollar.

The forex market is overwhelmingly dominated by international banks, government banks, investment banks, corporations, and hedge funds. In fact, individual traders account for only about 2 percent of the market. Nonetheless, a lot of people do try their hand at it, with varying degrees of success.

In the forex market, transactions are always handled in pairs: You buy one currency and sell another one. The idea is to make a trade when you believe the currency you’re buying is going to go up in value compared to the one you’re selling. Then, if it turns out your prediction was correct, you do another trade in the reverse direction -- selling the currency you originally bought and buying the one you sold -- in order to reap the profits.

For example, let’s say the market reports this: GBP/EUR 1.2200. That means the cost of buying one British pound is 1.22 euros. If you believed that course was going to change, and the euro was going to become more valuable than the pound, you might sell 100,000 pounds, buy 100,000 euros, and wait. Then let’s say a few weeks later, the exchange rate fluctuates to this: EUR/GBP 1.3100. Sure enough, the euro is now worth 1.31 pounds, a profit of 0.11 per unit.

The forex market is vast and daunting and mostly inhabited by giant organizations. But it can be navigated by individuals who have studied the finer points and who want to take a risk on something potential profitable. And since the whole world uses money, the trading of that money is always going to be a major force in the financial world.

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A forex demo shows you how it works before you jump into it for real

Before airplane pilots actually fly on their own, they usually practice in simulators that re-create what flying will be like without any actual risk. Since currency trading is as dangerous financially as flying is physically, it makes sense that there would be a forex demo available, too.

A forex demo is a smart way for a new investor to start. Reading books and taking online courses can teach you the basics, but the best way to learn anything is to get some hands-on experience. However, with forex, hands-on experience could mean losing your shirt. So a demo gives you real-world training with no actual money being involved.

Usually, the demonstration comes courtesy of a brokerage or other financial Web site that has an interest in currying your favor. The plan is that once you’ve tested your skills in the demo, you’ll get into the real thing and take advantage of the paid services the demo provider has to offer -- forex signals, managed accounts, automated trading, etc. The demo is like a free sample, offered in the hopes that you’ll enjoy it so much that you buy something, too.

For that reason, be should be highly suspicious of any Web site that wants to charge for a demo. Considering there are literally dozens of sites that offer free demonstrations, there is absolutely no reason that you should pay for it.

When you sign up for a forex demo, you’re given a username and password and shown how to use the demo system. Sometimes it involves downloading a piece of software unique to the company; other times it’s simply done over the Internet. (Some demos require Macromedia Flash, which most browsers have installed, but which you’ll need the latest version of.) You determine how much imaginary money you want to start with, and off you go!

Once you’re signed in to the forex demo, you do all the things you would do if it were a real-world situation: reading the charts, following the trends, visiting online forums to get other traders’ opinions, and making trades. The trades are recorded in the forex demo only and don’t go anywhere into the actual market since there’s no real money involved. When the market changes, the program determines how much you’d have gained or lost based on the decisions you made. You’re able to say, “Whew! Good thing this was only for practice!” or “Too bad this wasn’t real!” And once you’ve gained some expertise using the forex demo, you can move on to the real thing and start making some money for real.

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The forex market uses margins to increase your profits

Forex is a nickname for the foreign exchange, a vast market of trading in which the commodity is money itself. In the forex market, traders are buying and selling foreign currencies -- trading dollars for euros, pounds for yen, and so forth.

Forex is profitable because national currencies fluctuate from day to day based on predictions of the nation’s gross domestic product and other factors. As with the stock market, the idea with the forex is to buy low and sell high: Buy a lot of a particular currency when it’s weak, then sell it when it becomes stronger.

For example, bad financial news in Great Britain means that forex traders will be selling off their British pounds as fast as possible, as the pound is about to become devalued. Once the pound recovers, those traders will sell it for something else, thus turning a profit.

Though we talk of “buying” and “selling” pounds, euros, yen and francs, the transactions performed in the forex are not literal. That is, if you want to buy 100,000 euros, you don’t have to withdraw the equivalent U.S. dollars from your bank account and swap them out for a big stack of euros. Everything is done on paper only, though the resulting profits and losses are real.

Because the transactions are not done physically, there is room in the forex for what are called “margins” or “leverage.” Put simply, this means you don’t have to actually put up the full amount of the position you’re taking. Usually the margin is 1%, meaning that when you put $1,000 into it, you’re actually getting $100,000. Of course, margins multiply your losses as well as your profits, so you have to be careful.

One of the reasons for allowing a 100:1 margin like this is that the major world currencies in the forex market usually fluctuate less than 1% a day. (In the stock market, a typical stock might fluctuate as much as 10% in one day.) With changes that small, your daily loss or gain on an initial investment of $1,000 would be almost imperceptible, usually less than $10 either way. By multiplying it by 100, the gains and losses in the forex market are more pronounced.

With leverage implemented that way, the basic “lot” for buying and selling currencies is usually 100,000 (which of course only costs 1,000). Most firms that handle day-trading on the forex market don’t go any lower than that.

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Trying to forecast forex rates is an acquired skill

It’s not easy to forecast the forex markets, but it’s what thousands of forex traders and brokers do every day, with varying degrees of success. Like forecasting the weather, predicting the forex market is sometimes a crapshoot, sometimes a guessing game, and always an adventure.

There are two basic philosophies on how to forecast the forex markets. One is technical analysis; the other is fundamental analysis. We’ll look at them both.

The technical approach examines past market action and uses that data to predict the future. Previous trends in most areas of life are almost always good indicators of the future; forex is no different. People have not changed much in the decades since the forex market was created. People still buy and sell and react to stimuli in much the same way as they did 50 years ago.

Since forex rates change constantly throughout the day, every day, looking at all the years of past data can be daunting. Smart analysts learned to look at the big picture, to skip the minor details and examine trends over a longer period of time.

Using fundamental analysis to forecast forex markets is a bit more in-depth, but it can also be highly accurate. Basically, fundamental analysis means forecasting the market based on external factors -- political moves, government involvement, social movements, even the weather. Someone good at fundamental analysis might forecast forex drop-offs because he knows a country’s government is unstable at the moment, or increases because the country has just elected a popular new leader. Anything that can affect a nation’s economy can affect the exchange rates, and that’s what a fundamental analyst uses to guess at the forex market’s future

Naturally, this means having to know a particular country in-depth, which is hard to do for more than a few countries at a time. (It becomes even more complicated when trying to forecast the euro, since several different countries use that currency.) But having that kind of intricate knowledge makes it much, much easier to forecast forex trends.

Most good traders use a mixture of both processes, technical and fundamental. For example, a trader might see that a country is currently facing a particularly strong hurricane season (fundamental) and know that in the past, strong hurricane seasons have meant a weaker economy for that nation (technical). Thus, he can predict down-turns for that nation with some degree of confidence.

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Forex alerts are a handy way of staying on top of the market

Because currency exchange covers the entire world and all 24 time zones, forex is a 24-hour-a-day market. This is good in that it results in billions upon billions of dollars of transactions per day. But it also means that forex traders have a constant influx of information to keep track of, unlike the stock market, where once trading closes at 5 p.m., that’s it. So how do forex traders stay on top of things? Most of them use forex alerts of some kind.

Forex alerts are available from many online forex brokers and other companies. A forex alert is simply a message sent to the user informing him of the latest developments in the forex market, often recommending action of some kind. These alerts can be sent via e-mail or cell phone text message.

The idea behind them is that no one can follow all the markets all the time. Even if you limit yourself to just the “majors” -- U.S., Eurozone, Great Britain, Australia, Japan and Switzerland -- that’s still 15 currency pairs to keep an eye on. What’s more, sometimes things are steady for long periods of time, while other periods are marked by great activity.

The sites that offer forex alerts go about it in one of two ways. Some simply send out alerts every 24 hours, offering the latest info on the forex market. Others send alerts only when something crucial happens. These systems use formulas of their own to determine what constitutes “something crucial,” and they may charge a lot more for their more specific alerts. And of course it’s still up to the individual trader to act on or disregard the information send to him in the alerts.

Some brokers include forex alerts as part of their service, while others charge for them. Some are part of a wider alert program that also handles your stocks and bonds. You can tailor the type of alerts you get based on whether you’re a conservative or aggressive trader, and how actively you plan to trade.

Serious traders who use forex alerts swear by them. No system is perfect, of course, and a smart trader will always do a little browsing on his own to make sure his latest alert didn’t miss anything. But alerts are an invaluable way for busy investors to go about their daily lives without having to constantly watch the forex rates.

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