Posted by forex at 9:28 AM
Read our previous post
1. Assess the risks. Currency trades are made with very low margin requirements. The ratio of currency bought to the money you put up can be up to 400:1, meaning you put up just $250 for $100,000 of currency. Even very small changes in price can generate a big profit---but they can just as easily wipe out your capital.
2. Learn how a currency trade works. All currencies trade in pairs. For example, the US dollar and the Euro are quoted as EUR/USD = 1.4025 when it takes $1.4025 to buy one Euro. The smallest possible price change (called a pip) is $0.0001. Other currencies have different size pips, but they are all very small as well.
3. Know how pricing works in Forex. A seller states an asking price and a buyer a bid. The difference, called the spread, is only 1 to 2 pips for wholesale currency trades. Retail brokers mark the spread up to 3 to 20 pips and keep the difference instead of charging a commission. If a trader correctly guesses how the market will move and the change is greater than the spread, she makes a profit.
4. Take the time to become familiar with the factors that affect exchange rates. Breaking news, inflation and interest rates, and a countries trade and monetary policy all affect currency exchange rates. In addition, Forex trading itself affects exchange rates as traders buy and sell currency. Learn to interpret trend charts.
5. Practice Forex trading. You can sign up for a practice account and 'trade' currency in real time using standard trading software. This will give you experience in anticipating the market movements without risking any money.
6. Open an account with a Forex broker. Select a broker that offers real-time quotes and good online software but doesn't mark the spread up excessively (see Resources).