Some of the old guard of Wall Street bigwigs and financial gurus lament the presence of retail traders in the financial markets, claiming that they do not know what they are doing and will inevitably get crushed. However, this sentiment may be nothing more than resentment at the markets no longer being proprietary to them, as the ease of setting up brokerage accounts in recent years makes trading forex available to everyone.
Setting up a forex trading account is very similar to setting up a standard bank account. The most crucial step is finding a brokerage with which you are comfortable and can help you fulfill your trading goals, and from there, it is as simple as entering some personal information and linking a funding source.
While the process for setting up a forex trading account is very straightforward, that does not mean that it should be taken lightly. Any matters that involve your financial well-being carry at least some degree of import, and the transfer of personal information via online platforms should always be conducted with cybersecurity in mind.
7 Steps to Open a Forex Trading Account
Although more and more people continue to reap the benefits of mobile and at-home forex trading, there are still those who feel that they are not a real trader without a degree in finance or a job in investment banking.
This could not be further from the truth, as anybody with an Internet connection and some money to invest can start their path as a trader by using the following seven steps.
1. Find the Right Brokerage Firm
This may very well be the most challenging step in opening a forex trading account, as those with little to no experience may have a hard time wrapping their head around where to begin.
There are hundreds of institutions that offer the opportunity to set up a retail forex brokerage account on their platform. From household financial names, such as TD Ameritrade, to more up-and-coming players, such as eToro, there is a wealth of options with whom you can choose to do your trading.
Therefore, it is essential to do your research and find out which brokerage would be the best fit, with the following points among those you should most heavily consider:
- Are there any fees associated with having an account? If so, what, if anything, can you do to avoid them?
- Does the brokerage require you to maintain a minimum account balance?
- Are there any daily/weekly/monthly transaction limits?
- Does the brokerage seem reputable? As currency trading is lightly regulated compared to centralized banking, it is worth doing some research with national regulatory agencies to see if the brokerage has any history of unethical practices.
- Make sure you have a good understanding of the services and features that the brokerage provides. Some will simply offer the ability to make trades; others will provide more sophisticated analytical data, which may come with a fee.
- Do some research on the brokerage’s software for both computers and smartphones and make sure it is compatible with the devices you intend to use.
Once this critical step has been taken and you have decided on the brokerage you want to use, the remaining steps in opening a forex trading account are very similar to opening a checking account at the bank. The process is very consistent across the various forex platforms.
2. Visit the Brokerage’s Website
Upon arrival at the brokerage’s webpage, review the different types of accounts available, and choose the one most compatible with your financial goals. Most brokerages will offer various accounts, such as those designed for beginners that require a very low minimum balance, all the way to high-value accounts that provide a variety of in-depth analytical features for extremely active forex traders.
3. Complete an Application Form
Once an account type is chosen, the website will then direct you to fill out an application, containing much of the same pertinent personal information found on typical applications, such as name, address, date of birth, etc.
The application for a forex trading account may differ from other applications that you have filled out in its statement of purpose section. Most ethical brokerages will want to get an idea of why you are interested in setting up an account with them and then decide as to whether the product you have chosen is a good fit.
For example, if you plan on trading forex full-time and have significant previous experience and a well-defined strategy for profiting from the market, then applying for the most conservative account type may raise some red flags in the mind of the brokerage.
4. Choose Credentials
Upon completion of the application, you will then be directed to create a username and password for the platform. As with any username and password combination that contains sensitive personal information, make sure that they are strong, secure, and unique from those used on other sites.
5. Explore the Client Portal
Although the client portal should be pre-populated with the information you provided on the application, this will allow you to verify your personal data and correct or add anything that is missing.
6. Set Up the Transfer of Funds from Your Primary Bank Account
If there is no link in the client portal directing you to set up a bank account (most brokerages will not let you proceed until a funding source is successfully linked), there will be a separate tab or link on the home page.
On this page, you will be required to enter pertinent bank information, such as account number and routing number, that the brokerage will need to pull tradable funds from your primary financial institution.
While some brokerages may allow you to add funds from a credit card, be advised that there is typically a fee charged for this service. This is not to mention the hefty interest rate most credit cards charge on cash advances, so it is best to pull funds from a checking account.
When setting up the funding source, you will be expected to deposit the minimum account balance into your new brokerage account. You may also be given the option of setting up recurring deposits to your brokerage account, if desirable, and instructions on how to withdraw funds should you want to put any gains back into savings.
7. Begin Using the Platform to Make Trades
Most platforms will allow you to start trading immediately, even before your funds have settled. However, before making your first trade, it is crucial to get a firm understanding of the features offered on the software for both your computer and mobile devices.
Many brokerages will have the option of making a mock trade, which will allow you to get a feel for what an exchange consists of from start to finish without using any real money. Even with this feature, it is still a good idea to make your first few trades small to get a feel for how to use the platform and see your money at work.
The proliferation of technology has made trading opportunities available to people from all walks of life, no matter the size of their bank account, education level, or finance experience.
As such, if trading forex is something that has piqued your interest, the process for opening a forex trading account is relatively simple.
The most important step is finding a brokerage that you trust, understand, and seems compatible with helping you reach your trading goals. From there, the process is very similar to opening a traditional bank account, with the input of some personal information and a linked funding source required before the trading can begin.