There are many advantages to trading in Forex, including:

— Liquidity: Because of the size of the Foreign Exchange Market, investments are extremely liquid. International banks are continuously providing bid and ask offers and the high number of transactions each day means there is always a buyer or a seller for any currency.
— Accessibility: The market is open 24 hours a day, 5 days a week. The market opens Monday morning Australian time and closes Friday afternoon New York time. Trades can be done on the Internet from your home or office.
— Open Market: Currency fluctuations are usually caused by changes in national economies. News about these changes is accessible to everyone at the same time — there can be no 'insider trading' in Forex.
— No commission Fees: Brokers earn money by setting a 'spread' — the difference between what a currency can be bought at and what it can be sold at.
How does the foreign currency exchange market work?
Currencies are always traded in pairs — the US dollar against the Japanese yen, or the English pound against the euro. Every transaction involves selling one currency and buying another, so if an investor believes the euro will gain against the dollar, he will sell dollars and buy euros.
The potential for profit exists because there is always movement between currencies. Even small changes can result in substantial profits because of the large amount of money involved in each transaction.
At the same time, it can be a relatively safe market for the individual investor. There are safeguards built in to protect both the broker and the investor and a number of software tools exist to minimize loss.

Common Sense Guidelines for the Average Trader

• Ability to trade effectively depends on consistent spreads and ample liquidity
• Anyone can establish a position
• Ability to close out a position at a fair market price is more important

Live to trade another day

• Apply prudent money management skills
• Avoid using excessive leverage that puts your investment capital at risk
• Always trade with a stop!

Don’t trade emotionally, stick to your plan and maintain discipline

• Establish a trading plan before initiating a trade
• Set reasonable risk/reward parameters
• Don’t override your stops for emotional reasons
• Don’t react to price action – means don’t buy just because it looks cheap or sell because it looks too high, Have supporting evidence to back up your trade

Don’t punt

• Don't punt( Punting is trading for trading sake without a view)

Don’t leave stops at obvious levels such as “big figures” (e.g. eur/usd 1.20, usd/jpy 110)

• i.e. JUBBS stops = stops at obvious levels and thus are more likely triggered

Don’t add to a losing position in unless it is part of a strategy to scale into a position

• In other words, don’t double up in the hope of recouping losses unless it is part of a broader trading strategy

Trading with and against the trend

• When trading with a trend, consider the use of trailing stops.
• When trading against the trend, be disciplined taking profits and don’t hold out for the last pip

Treat trading as a continuum

• Don’t base success on one trade
• Avoid emotional highs or lows on individual trades
• Consistency should be an objective

Forex trading is multi-currency

• Watch crosses as they are key influences on spot trading
• Crosses are one currency vs. another, such as eur/jpy (euro vs. jpy) or eur/gbp (eur vs. gbp)
• Crosses can be used as clues for direction for spot currencies even if you are not trading them

Be cognizant of what news is coming out each day so you don’t get blindsided

• Be cognizant of what news is coming out each day so you don’t get blindsided
• Beware of trading just ahead of an economic number and be wary of volatility following key releases

Beware of illiquid markets

• Beware of illiquid markets
• Adjust strategies during holiday or pre-holiday periods to take into account thin liquidity
• Beware of central bank intervention in illiquid markets