Online Currency Trading
Online currency trading for beginners
Online currency trading can produce great returns in a short period of time if you know what the trends are and how to use them to your advantage. The flip side of the coin is that if you are an inexperienced trader, the FOREX market can seem like an exceptionally big pond full of very nasty surprises.
Prior to even considering trading on the FOREX market, it is advisable to first test your knowledge of the exchange market, your understanding of market trends and your ability to actually trade in FOREX. Major broker companies such as Forex Capital Markets (FXCM) provide free online tutorials and virtual trading accounts to give you a proper taste of the markets. Once you have tested the waters, you can then advance to trading on the real currency market. The following are a few simple explanations and guidelines to get you started should you be interested in the profitable yet complicated world of foreign exchange trading:
• Foreign exchange trading is based on margin trading. What this means is that your online broker or account opener will require a small deposit from you to open a position with a substantial value. This deposit is used as collateral and is usually a percentage of the total amount in the account. Different trading companies and brokers require different deposits, but usually the deposit required is between one and five percent of the total account value.
• You can dabble in online currency trading in one of two ways: you can open up an account with an online broker and allow them to trade on your behalf, or you can open up your own electronic trading account and actually trade yourself. The second option carries significantly more risk than the first so if you are planning to trade yourself, it is advisable to initially trade a mini-FOREX account.
• A mini account is an account that can be opened using a small sum of money. The profits that you make will not be as high as they would be if you had a real account, but you will also prevent yourself from suffering big losses.
• Currencies are always traded in pairs and all currencies are traded against the US dollar. The first listed currency is termed the base currency, while the second is known as the counter currency. Examples of currency pairs would be EURUSD (euro and US dollar), USDJPY (US dollar and Japanese yen) and GBPUSD (Great British Pound and US dollar.)
• To make a profit from foreign exchange trading you need to correctly speculate on the performance of a currency over a set period of time. You open a position on the market by buying a particular currency then use market trends to your advantage to close the position by selling the currency at a profit. In reality you are not selling the currency at all, but rather buying back its counterpart. The profit you make will be the difference in value between the two currencies at the time of sale.
• Before beginning to trade, you will need to carefully analyze the market using technical analysis, fundamental analysis or a combination of both. Technical analysis is based on price data, while fundamental analysis is the investigation of the circumstances in the country of a currency.
• It is advisable to explore as many approaches to analysis as possible before beginning to trade online. Read books, complete online tutorials and look up information on the websites of major online brokers. Your knowledge of the markets will determine the profitability of your trading. The daily foreign exchange website is an example of a site that is filled with information on the markets and market research.