Note: there is (are?) now an online brokerage(s) that offers free trading with no account minimum.(Definitely nice, if you have self control.)
FOREX (short for foreign exchange) is where currencies are traded. I learned that the minimum account balance and trading fees were much less than in the stock market. I was immediately excited, and opened a free practice account. I read a lot and learned about what investors refer to as fundamentals and technical signals and a bunch of other fun stuff. In the practice account (where fake money is used) I lost some, but I also made some, and as I learned more I thought it was almost time to invest with real money (after all, all this opportunity seemed passing me by--why not start making money now?) so a few months after opening the practice account I opened a real account with some money.
I really was quite hasty (although at the time I didn't think I was) and although my first trade made money, every trade after that was a loss, so I soon closed the account.
Where did I err? First, I was being guided by emotions rather than logical reasoning. When using a fake account, I did not consistently make favorable trades, yet still risked (and lost) real money because of the false ideas that (1) I could iron out any problems in the way I traded later and (2) the longer I didn't use real money, the longer I would be missing out on an opportunity. Of course, these are both illogical reasons. Looking back, I can see that much of my decision making process, both in opening the account and when trading, was guided by emotions.
Although I see what I did wrong in the past, I don't intend to use FOREX again because of the following: First, trading fiat currencies is not productive. It doesn't create wealth. When people trade things of actual worth (commodities, services, etc) people can be benefited immensely, but not when trading fiat currency. Second, FOREX is a zero-sum game (or worse). Currencies are traded in pairs (e.g., USD/EUR) and to bet that one currency will rise in relation to another, someone else must bet against you. If you win, they lose. If they win, you lose.
The stock market is different. If someone buys shares of stock, they are investing in a company. Also, it's not a zero-sum game. If I buy shares of stock from someone and they increase, I have gained money, but the person who sold the shares to me does not lose wealth.
Some things I've learned from this:
- Completely understand where money is going and coming from before investing.
- If I cannot be faithful in small things (play trades), I should not except to have success in big things (real trades).
- Even though I was aware of the dangers of emotional thinking, I still fell into it, even without realizing it. First, I was kind of greedy and impatient. Then as I started losing money I became fearful and somewhat desperate. Thankfully it wasn't much money :-)