Making money with currency trading requires substantial discipline. The motivation to try your hand at this is very understandable, as most people seek it out as a way to make money on their own without a job, schedule, or boss. Unfortunately, while hating your current day job might proved a strong motivator that drives you towards trying this, if you want to be successful at it, then you need to stay at that day job or another one for awhile as you establish yourself in currency trading.
Just learning how to go about making money with currency trading takes months. Before you even put your first dollar into it, you should spend at least a month using the free demos or dummy accounts that the various trading platforms or software offer. You need to familiarize yourself with the options, buttons, menus, and everything else involved. Just learning the mechanics can actually take a month on its own.
Once you do that, you still need to spend several months working in the dummy account trying various strategies and techniques. This is where you learn how to make money with currency trading, but practice with fake virtual money first.
Even after you start dealing in real money, you need to stick with one currency pair to master fundamentals and basics. You also need to only use discretionary income from your existing budget, and have an emergency reserve fund stashed away that you do not touch so you have multiple month’s worth of bills saved up.
Making money with currency trading is profitable for those who are disciplined, determined, and diligent, but most of all for those who are persistent and patient. The wealth is there, but if you are heading into it with an attitude of getting rich quick so you can quit your job next week or month, your expectations are probably unrealistic.
Trading currencies on the Forex market is something that is available to individual traders everywhere. As long as you have a reliable high speed Internet connection and some starting seed money for trading you have the ability to pick out a broker, open an account, and start trading. However, there is no market that is trickier or more volatile than the Forex and that’s why new traders should take some serious time to study how trading currencies work and to use practice accounts to get the hang of things before putting your own money up for risk.
Leverage: Friend & Foe
Leverage is a major part of how currency trading works. Generally the minimum trade is $1,000, which will normally control $100,000 in currency. This is how major money can be made (or lost) when the value between a couple currencies moves even a fraction of a cent (or pips). Looking at 0.0002 might not seem like much, at least not until you take that times 100,000.
Leverage means a small amount of money put in can reap massive profits when the trade breaks your way, but it also means that you can lose a lot of your initial investment in a very short time if the market goes volatile and suddenly turns against you.
Trailing stops are your best friend when trading the Forex. This means as your currency pair is moving, when it goes down a certain number of pips, the stop automatically kicks in and kicks you out of the trade. This is critical to make sure that you protect yourself from potential losses while still staying in long enough to cash in on some winning trades.
All smart traders use trailing stops. This is a huge part of how successful currency trading works.
When it comes to currency trading there is a lot to learn. The Forex market is the most complex trading market in the entire world as well as the most volatile. There are many different strategies to trading, and many different ways to make money doing so.
All trading is done in currency pairs. One currency is used to buy another, and the hope is that the difference in changing values between the two creates a bigger gap – allowing the trader to profit. Leverage is also a major part of trading currencies on the foreign exchange (Forex) markets.
Generally speaking $1 controls $100 in the forex so the conventional $1,000 bet size actually controls $100k of currency. This is how such small and frequent volatile movements in the market can result in so much profit – because it is scaled up times 100. The numbers can be a little bit higher or lower, but $100 is a pretty common base.
One of the first things you will need is a trading account with an online broker. Look for a broker online and use the software they provide. Every one of these should come with practice software that uses play money but real life charts. This is crucial in order to get used to how the charts work, how fast the markets move, and to learn how to handle all the action going on so you can profit instead of getting confused which is a recipe for disaster.
Keep in mind that currency markets move by the second, meaning you really need to keep on top of them and learn how to read patterns to have any chance at all of becoming a successful trader. If you do this, you will have a chance make money trading currency.
Forex trading can be extremely complicated and challenges even the best of traders, and that’s before looking at the specific ins and outs that come with specific currencies, currency pairs, and other economic factors that can affect these trades. Then there are also the various off-shoots or differing types of currency trades like carry trades, scalping, or even binary options.
These are all important concepts to understand if you want to know how to trade in a way that will help you earn long term profits. The first thing you need to know about is leverage. Leverage is the key behind how people can make so much money with a single trade, or lose so much is some things go wrong. Generally speaking $1 put up for trading equals $100 on average although sometimes depending on the broker you might get a 150:1 or even 200:1 ratio.
While a higher ratio can conceivably lead to higher profits, they can also make the trade more volatile so this is a two-edged sword.
Potential Correlation Issues
Every currency has its own personality. Certain correlations will make a huge difference. The AUD, for example, is tied closely to the price of copper. High copper prices mean higher AUD value, low prices go the other way. Since New Zealand’s economy is so tightly tied to Australia’s, it is also affected by that. The Swiss Franc is often seen as a safer currency so when markets are in turmoil in general, the CHF tends to often see a strong upswing.
The price of gold and the USD also have a strong inverse correlation. Gold is seen as important for when the Dollar is weak. High gold prices usually mean a weak USD. A strong USD usually means lower gold prices.
These are reports you have to keep an eye on if you are going to trade the Forex successfully.
Currency trading is a popular form of online trading that has strongly eclipsed stocks and commodities as the most traded market in the world. Focusing on the buying and selling of one currency for another, the foreign exchange (Forex) is where these trades takes place and allows individuals and brokers the opportunity to trade in international currencies using broker approved trading software and leveraged money to attempt to make their trading fortunes.
The Markets Are Volatile
The Forex market tends to be very volatile, in part because money is generally leveraged at $1 put in at position controlling $100 of actual currency. That means your $1,000 bet on a currency pair actually represents the buying and selling of $100,000 of actual currency. That means even the smallest movement in price up or down between the two currencies can lead to huge jumps in the market.
Trading Is Done In Pairs
In order to buy one currency, you must sell another, and vice versa. There are always two currencies involved, and well over 90% of all currency trading involves the big eight nations (as far as currency goes): The United States, Canada, Great Britain, European Union (EU), Switzerland, Japan, Australia, and New Zealand.
No Set Trading Floor
Unlike many stock markets, there is no set trading floor for the Forex. The market is open 24/7 online, and although trading of each individual currency tends to be hottest when that nation’s other trading markets are open, those currencies are still available to continue trading any time during the week. Since it is all done online and through online brokers, there is no actual physical location where trading takes place.
These are some of the basics you need to understand if you’re going to jump into the constantly changing world of currency trading.