Posted by forex at 2:39 AM
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1. Understand the quoting convention. Currencies are quoted in pairs; that is, two different currencies. The first currency is the transaction currency and the second is the payment currency. The quote tells the trader how many units of the payment currency are needed in order to buy one unit of the transaction currency.
2. Understand pricing. A quotation of GBP/USD of 1.5500 means that one pound is worth 1.5500 U.S. dollars. If the quote goes to 1.5510, the pound is getting stronger and the dollar is getting weaker. However, if the quote moves to 1.5490, the pound is getting weaker and the dollar stronger.
3. Choose a broker with low spreads. While there is no explicit commission in forex trading, brokers do make money off of the spread between the bid and the asking price for a currency. Lower spreads equate to more money in your pocket.
4. Trade with a quality institution affiliated with a large financial center. Check to see that the broker is a registered Futures Commission Merchant (FCM) and regulated by the U.S. Commodity Futures Trading Commission (CFTC).
5. Try the demo before funding the account. As forex is highly decentralized, there is no set way for trading currencies. Brokers, therefore, provide different trading platforms. Compare the tool-set and research available from at least three different trading platforms before making a final decision.