FOREX currency trading.
What is Forex currency trading? It is trading foreign currencies
and profiting on the exchange rate differential or currency fluctuations.
Forex currency trading involves risk and is not for everybody but
you lower the risk by doing the research. Most Online Forex trading sites offer some training and tools.
Forex currency trading markets are
open 24 hours a day so as a trader you can trade when you want.
When currency trading you want to look for a currency that offers the highest return with the lowest risk. So if a country's stocks and bonds
(and other financial instruments) are offering a high rate of return with low risk then as a forex currency trader you may want to buy that currency.
Also look at the country's business cycle. Is it growing or in an uptrend?
Forex currency trading involves evaluating other key factors as
- Political instability
- Rising interest rates
- Economic reform
All of the above have an impact on the counties currency rate and your job as a forex currency trader is to predict currency rate
moves so you can get in or out before everybody else. Guessing correctly and and taking a position in that currency at the beginning of the
trend can net a tidy profit but the wrong move could cause you to lose it all.
As with trading equities, you make money when you buy the currency
at low prices and sell at higher prices (referred to as going long, or long position) or sell the currency at a high price and buy it back at a
lower price (referred to as going short the currency, or short position).
As a Forex currency trader, what currencies should I trade?
The U.S. dollar, the EURO, the
Japanese YEN, and the British pound are the four primary currencies traded however there are many more currencies than these four. Someone is always willing
to to buy or sell these four currencies which makes it easier to make money. Currencies of smaller countries are less liquid which makes it harder to find
buyers and sellers. There is not much demand for currencies of developing counties (soft currency) and converting their currency can be difficult. Trade
pairs, not currencies.
Read more about what FOREX currencies to trade..
Forex currency trading risks and rewards
Factors to watch :
- changes in price of the currency
- changes in the exchange rate
- fast changes in the currency exchange rates
- liquidity, not a major risk if you are trading the major currencies
- changes in the political climate or regulations of the country , also watch the holiday schedules of the countries whose
currency you trade because the markets may not be open on those days just when you need the money.
Forex currency trading requires a commitment. You should study historical data about
the currency rate and interest rate fluctuations (for the currency you want to trade, get some charts). Also look at the country's economic history and
political stability. Set some trading goals and limits. Decide how much money do you want to risk.
Technical analysis - Forex currency trading technical analysis is performed in a way that is similar to that of trading stocks,
bar charts etc. A lot of brokers/dealers offer access to technical analysis tools. There is one main difference between the stock and forex markets,
in that the forex market is open 24 hours a day so the daily price chart sometimes shows a
opening price in the Pacific Rim and a closing price in the U.S. Get focused. Maybe a good way to start is to paper trade.
In any event you will need to find a qualified broker.
Some online forex currency trading brokers offer demos. Also look into purchasing Forex trading software to give you the tools needed.