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.