Posted by forex at 3:24 AM
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1. Open an account with one of the on line foreign currency trading houses. For example, Oanda is a popular one.
2. Send funds to the account.
3. Decide on a market direction. For example, early in 2010 many currency traders believed that the European Economic Union's euro was overvalued and would decline against the United States dollar as a result of how much debt the Greek economy had incurred (Greece is a member of the Eurozone and therefore part of the European Union).
4. Enter the trade that supports the market direction. If, for example, you are betting on the decline of the euro against the U.S. dollar in six months, you will want to sell euros and buy U.S. dollars with a transaction date of six months. If the value of the euro declines at any time in the next six months, you can buy it back and close the trade at a profit. For example, assume the euro is trading at a conversion rate where EUR$1 can purchase US$1.44. If you agreed to sell EUR$100,000 when the conversion rate was EUR$1 to US$1.44 and in six months the euro dollar dropped to EUR$1.22, it means that, to complete this deal, you would only have to spend US$122,000 to purchase the EUR$100,000 and would have a profit of US$22,000. However, the reverse can be true. If the euro dollar rises to US$1.66 for EUR$1, you would have a loss of US$22,000, since it would cost more to purchase the euro (see Reference 2). You make (or lose) money when the broker pays you the difference at the end of the transaction. So, in this case, you would either receive $22,000 or have to pay the broker $22,000.
5. Close the trade and, if successful, take your profits.