Who doesn’t need more money these days? If you’re thinking about how to earn an extra income or increase investment account assets, consider forex trading (also known as foreign exchange or currency trading). Some experienced forex traders can earn thousands a month–or a thousand percent return on capital in a single trade!
Currency trading is increasingly accessible to investors and traders and, with a little training, it’s possible to build trading assets or even earn a second income. Online trading platforms and technology make it possible for almost anyone to trade currency pairs. This strategy enables the trader to profit from ongoing price movements that occur between any two currencies. Foreign exchange is the world’s largest trading environment, and more than five trillion in USD trades each day according to Reuters!
It’s a great idea to learn about and practice forex trading before getting started with real money. A forex trading platform should provide free tools for beginning forex traders. For instance, follow the U.S. Dollar (USD) versus the British Pound (GBP) or the Canadian Dollar (CAD) versus the Australian Dollar (AUD) for a period of weeks or months to become familiar with daily trading ranges. Many people don’t think about the importance of practicing how to enter trades or check account balances, so it’s a good idea to learn these skills before exposing capital to risk. Knowledge To Action is an example of a forex trading firm that offers no cost workshops and training tools to help new forex traders succeed.
Another interesting site where you can get information about forex trading is forextrade.co. It has some interesting free articles about the subject and also offers brokers ratings and information, which is very important to get before you start your trading activity.
Open a Forex Trading Account
Start by filling out a forex brokerage firm’s online trading form and submit the application. The forex trading firm may ask the new accountholder to fill out tax forms and an initial deposit with the application. When the account is approved, the trader may enter buy and/or sell orders through the forex firm’s trading portal.
Some foreign exchange trading strategies can be risky and it’s possible for a trader to lose his or her money with a trade that goes in the wrong direction. Practice before entering live trades is good advice because a “bad trade” can wipe out the investor’s trading capital! This is also one of the best reasons to trade currency pairs rather than long or short single currency contracts. Currency pairs can enable the trader to profit from the “spread” of movement between the two currencies. Since currencies trade infinitely against each other and no sovereign currency ever really loses money, it’s important to learn about the use of borrowed money (also known as leverage) when trading forex. For instance, some forex brokers require just one percent of the trader’s capital in account. The remainder of funds is borrowed from the broker.
Making a Trade
When ready to execute live trades on the broker platform, “pit” one currency against another currency. For instance, if you believe the U.S. Dollar (USD) will gain value against the Canadian Dollar (CAD), purchase a USD/CAD pair. Purchase of this pair shows that the trader expects the value of the USD to increase in relation to the second currency. If the trader is right and USD rises against CAD, the trade makes money. If CAD increases against USD, the trader risks a loss. Some strategies, such as selling/shorting the currency pair reflects the trader’s belief that USD will lose value against CAD.
Profits and Losses
Forex profits or losses are not realized until the trader closes out an entered position or positions. If the trader buys the USD/CAD pair, he or she profits when the pair is sold (when it moves as expected). If the currencies move in the opposite direction, it’s important to make disciplined trading decisions about when to take losses. Foreign currencies trade around the clock and active currencies like USD and CAD are actively traded.
Many forex traders recommend the use of stop-loss orders as a protective strategy. The trader makes a pre-established decision about when to sell (usually at a stated price relationship between the currencies or ratio). A forex trading chart for each currency is likely to show support and resistance levels in the currency so, when the currency trades through support or resistance, many traders consider closing the transaction to book profits or minimize losses.
Not everyone should consider forex trading. Because most forex traders use high leverage levels, it is possible to lose one hundred percent of investment. Some traders work with an experienced partner to gain valuable real world advice or seek out a client-driven trading firm that focuses on the education of its clients. Select a forex firm that’s invested in trader success to achieve best results.