Foreign Exchange, called Forex or FX, is becoming more and more popular with people who wish to invest their money online. Forex is the world’s biggest market, trading about $5 trillion a day! No other market is as big as the currency market, which trades 24/7.

Forex is quite simple to understand. When you trade you simply exchange one type of currency to another at the agreed exchange price dictated by the market. Looking at the currency pair of EUR/USD, for example, you speculate whether the base currency (EUR) will fall or rise against the counter currency (USD). If you think it will fall, you sell it, so you’d go short as traders say. If you think it will rise, you’d buy it, so you’d go long.

In other words, Forex is based on consistently selling one currency while buying another. The obvious goal is to profit from those changes and the aim is to predict the direction of the markets. This, however, is not as simple as it sounds. You have to have a good trading and market knowledge in order to speculate correctly and to win. Having a sound risk management system in place is crucial in order to be able to control your losses.

Start with demo account and regulated broker
Being a novice requires lots of learning and practising on a demo. It’s important to choose a good broker first and be aware of their tricks. Be sure to check if the broker is regulated, as once you get used to trading on their demo platform, you’re more likely to stay with them and open a live account. Every broker is different, they take different profits and have slightly different margins on currency pairs as well as different withdrawal rules, so do your research first.

The most widely used trading platform is MetaTrader 4 or 5 (MT4/MT5) mainly due to the fact that it works well and it is absolutely free. In addition, there are many indicators, templates and other helping tools available for this particular trading platform.

To start you can download the platform online with a demo account and practice as much as possible to educate yourself well. Try different currency pairs and test your analytical skills.

What is a historical data trading?
If you want to win on Forex, you’d need to have a winning strategy, good analytical skills and be sure to not to let your emotions take control. Stay calm as emotions will ruin you quickly. Stick to your tested and winning strategy.

The easiest way to do this is to perform few backtests with a Forex trading simulator. Using simulator on a demo account can save you money and a lot of stress. Trade on a demo until you’re absolutely certain that your strategy works.

The FX trading simulator is a great tool as it lets you go back in time and replay the market using real historical price data. You can choose the dates and times you’d like to review. You’ll be able to see charts, indicators and economic news as it was happening live. You’ll also be able to modify your trades in order to “fix” your strategy. In addition, you may speed up the simulation to skip the less important or quiet periods.

How does it work?
Trading historical data, in comparison to demo trading, can save you time. You will be able to adjust your stop-losses, take-profits and margins in order to improve your strategy. When choosing a forex simulator it’s important to bear in mind to look for the one that can give you a true and realistic market experience.

It should have many currency pairs available for testing. Also, it should give you an option to trade on different time frames. Advanced simulators have a built-in economic calendar and allow their traders to use MT4 indicators and templates, as well as to draw daily charts. After you’ve done your backtesting, you’d want to save it as an exported file to an Excel sheet for further analysis.

Backtesting is a great and a quick way to learn trading, as well as one of the best ways to improve your strategy. The best way to choose a simulator software is to read other traders’ opinions and reviews.

Author's Bio: 

I've been testing different simulators and performing backtesting on demo and live accounts. I know what the important aspects are and what to look for on the market. I've spent many hours educating myself on how to trade. I'm sharing my knowledge with you now.