Today’s market allows ordinary investors to buy and sell currencies of different countries. Most transactions are conducted through Forex, which is an online foreign exchange trading market open 24 hours a day, 5 days a week. With enough knowledge of the market and a little luck, you can make money trading currencies.

Learn about Currency Trading

Check the exchange rate between the currency you want to sell and the currency you want to buy. Watch the volatility of your chosen currency pair.

Currency exchange rates are quoted in pairs and tell you how much the currency you want to sell can be converted into another currency. For example, the exchange rate of the US dollar to the euro is 0.91, which means that for every US dollar you sell, you can exchange it for 0.91 euros. Currency values frequently fluctuate.

Factors such as political instability and natural disasters may cause value fluctuations. Make sure you understand that currency exchange rates are constantly changing.

To make a profit from trading, you have to use a currency that you expect to lose value to buy another currency that is expected to appreciate in value. For example, if you believe that currency A, whose current price is $1.5, will rise, you can purchase a “call option” to buy a specific amount of the relevant currency at an agreed price. If its price rises to $1.75, you make money.

Even for investment experts, buying and selling foreign currencies is risky. Many investors use leverage to obtain more funds to buy more currencies. For example, if you want to trade $10,000 worth of currency with a leverage ratio of 200:1, just deposit $100 into your margin account. However, if the investment fails, you not only lose your own money but also owe the broker a large amount of money, possibly more than you would lose investing in stocks or futures.

Buy and Sell Currencies

• Get cash in local currency. You need to exchange this cash into the currency of another country. Selling other assets to raise more cash. Consider selling stocks, bonds, mutual funds, or withdrawing money from your checking or savings account.
• Find a Forex broker. In most cases, individual investors conduct currency transactions through the services of a broker. Online broker OANDA provides an easy-to-use retail trading platform fxUnity to facilitate retail investors to buy and sell foreign currencies. Online brokers Forex.com and TDAmeritrade also allow you to trade in the Forex trading market.
• Look for a broker with low spreads. Instead of charging traditional commissions or fees, Forex brokers make money from the spread, which is the difference between the price at which a currency is bought and the price at which it is sold. The higher the spread, the more you pay the broker. For example, if a broker buys 1 U.S. dollar for 0.8 euros, but sells 1 U.S. dollar for 0.95 euros, the spread is 0.15 euros. Before signing up for a brokerage account, check its or the parent company’s website to make sure it is a registered futures commission merchant regulated by the Commodity Futures Trading Commission.
• Start placing an order with the broker. You should be able to use visualization software or other resources to track the progress of your investments. Don’t overtrade or buy too many currencies at once. Experts recommend investing only 5% to 10% of your account total at any one time.
• Set a stop loss order. This is an important part of currency trading. A stop-loss order automatically closes a position, that is, sells the currency that has been bought, once a specific price is reached. This can reduce the amount of money lost if the currency you bought starts to plummet.
• Record the transaction cost basis. In many countries, you need to record this information and use it when filing your taxes each year.
• Limit currency transaction amounts. Currency trading is often very risky, and experts recommend that it be a small portion of your overall investment portfolio.

Tips

• Don’t trade a currency based solely on your belief that it will collapse. If you have reliable information about the future trend of a currency, you can use this to develop a buying and selling strategy to make a profit. However, people who trade based solely on hunches or emotions can easily lose money.
• The amount of currency transactions must not exceed the loss range you can afford. Remember, even if you have accurate information and a solid investment strategy, currency trading is always a gamble. No one can accurately predict market behavior.
• Currency trading is a speculative activity.