Posted by forex at 4:40 AM
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1. Review the definition of a currency pair. Currencies are traded in pairs, that is, two different currencies. The first currency is the transaction currency and the second is the payment currency. The quotation tells us how many units of the payment currency are needed in order to buy one unit of the transaction currency.
2. Understand how currency prices move. Let's say you want to trade EUR/USD. If the current quote for EUR/USD is 1.2400, it means that one EUR is exchanged for 1.24 US dollars. If the quote moves to 1.2410, it means the euro is getting stronger against the dollar. However, if the quote moves to 1.2390, it means the euro is getting weaker against the dollar.
3. Choose a broker with low spreads, a strong reputation and extensive tools. There are as many Forex brokers are there are different types of currency. Look for low spreads, which is the difference between the price the currency can be sold and bought at (also known as bid or ask price). Forex brokers don't charge commission and this difference is how they make money. Look for a quality institution. Your broker should be registered with the Futures Commission Merchant (FCM) and regulated by the Commodity Futures Commission (CFTC). Finally, look for an extensive tool-set offering. Download a few versions of Forex trading software from different brokers before funding your account. Play around with the tools and request a virtual trading account to test the trades.
4. Sign up for a Forex account. You can fund your account using a credit card, money order or wire. Signing up is the same as getting an equity account, however you will need to sign a margin agreement. The spreads are so small on Forex that it takes a great deal of capital in order to trade profitably. It is not unusual for Forex accounts to be leveraged 50 times (this is the same as borrowing money). Once you register, be mindful of how much your account is margined. If your trade suffers a loss that takes your position into negative territory, it will be automatically closed. Start off with no leverage and work your way up to 20 times. This will make it easier to understand the effect it has on your trades.