Buying and selling foreign currencies in the currency market (also known as Forex trading) can be an exciting hobby that can also lead to substantial investment gains. From a macro perspective, the daily trading volume of the securities market is US$22.4 million; while the daily trading volume of the foreign exchange market is approximately US$5 trillion. Your initial investment is inexpensive and predicting market trends can make a real impact. There are many ways you can buy and sell foreign exchange online.

Learn the Basics of Forex Trading

Understand basic Forex terminology.

• The currency you are spending, or selling, is the base currency. The currency you are buying is called the quote currency. In Forex trading, you sell one currency to buy another.
• The exchange rate tells you that you have to burn the quoted currency to buy the base currency. For example, if you wanted to use British pounds to buy some U.S. dollars, you might see an exchange rate like this: GBP/USD=1.589. This exchange rate indicates that it would cost you $1.589 to buy 1 pound.
• Long indicates that you want to buy the base currency and sell the quote currency. In the above example, you want to sell USD and buy GBP.
• A short position indicates that you want to buy the quote currency and sell the base currency. In other words, you would sell pounds and buy dollars.
• The bid price is the price your broker is willing to pay for the base currency using the quote currency. The bid price is the best price you are willing to sell the currency at in the market.
• The ask, or ask, is the price your broker is willing to sell the base currency to buy the quote currency. The selling price is the best price you are willing to buy from the market.
• The spread is the difference between the buying price and the selling price.

Looking at a foreign exchange quotation, you will see 2 data on a foreign exchange quotation: the buying price on the left and the selling price on the right.

Decide which currency you want to buy or sell.

• Make predictions about the economy. If you think the U.S. economy will continue to be weak, which is bad for the U.S. dollar, then you may want to sell the U.S. dollar and buy currencies from places with strong economies.
• Look at a country’s trade situation. If a country has a lot of goods it needs, then the country may be able to export a lot of currency and make money. This trade advantage stimulates national economies and increases the value of international currencies.
• Consider political factors. If a country is holding an election, the country’s currency will benefit if the winner of the election has a responsible fiscal agenda. Likewise, if a country’s government deregulates its economy in the interest of growth, the currency may appreciate.
• Read economic reports. For example, a country’s GDP report, or reports on other economic factors such as employment and inflation, can affect the value of that country’s currency.

Learn how to calculate profits.

• Points are used to measure the change in value between two currencies. Typically, 1 pip is equivalent to a 0.0001 change in value. For example, if your EUR/USD trade moves from 1.546 to 1.547, the value of your currency will increase by 1 pip.
• Multiply the exchange rate by your account change in points. This calculation will tell you how much your account balance will increase or decrease.

Open an Online Forex Brokerage Account

Research different brokers. Consider the following factors when choosing an agent:

• Find one that has more than 10 years of experience in this industry. Experience shows that this company knows what it is doing and knows how to care about its customers.
• Check whether the broker is regulated by the major regulatory agencies. If your broker proactively accepts government regulation, you will feel reassured about the trustworthiness and transparency of your broker. Some oversight bodies include:
• United States: National Futures Association (NFA) and Commodity Futures Trading Commission (CFTC)
• UK: Financial Services Authority (FSA)
• Australia: Australian Securities and Investments Commission (ASIC)
• Switzerland: Swiss Federal Banking Commission (SFBC)
• Germany: German Federal Financial Supervisory Authority (BaFin)
• France: Financial Market Authority (AMF)
• See how many products this broker has to offer. If the broker also trades securities and futures, for example, then you know the broker has a larger customer base and a broad scope of operations.
• Read some reviews but be careful. Sometimes, unscrupulous brokers will go onto review sites and write reviews to boost their reputation. Reviews can give you an idea of a broker, but you should always take them with a grain of salt.
• Visit the broker’s website. The website should look professional and the links should work. If there is something on the website that says “Open now!” or other unprofessional content, avoid this broker.
• View transaction fees for each transaction. You should also check how much your bank charges to transfer money to your foreign exchange account.
• Focus on the basics. You need good customer service, easy transactions, and transparency. You should also tend to choose a broker with a good reputation.

Ask about opening an account. You can open an individual account or choose a shared account. With a personal account, you can implement your own transactions. With a shared account, your broker implements the trades for you.

Fill out all required paperwork. You can request that the paperwork be mailed or downloaded, usually as a PDF file. Make sure to look at the fees you pay to get money from your bank account into your brokerage account. These fees will reduce your profits.

Activate your account. Typically, the broker will send you an email with a link to activate your account. Click this link and follow the instructions to start trading.

Start Trading

Analyze the market. You can try different methods:

• Technical Analysis: Technical analysis involves looking at charts or historical data to predict the direction of a currency based on past conditions. You can usually get charts from your broker or use a popular platform like Metatrader 4.
• Fundamental Analysis: This type of analysis involves looking at a country’s economic fundamentals and using this information to influence your trading decisions.
• Sentiment Analysis: This type of analysis is mostly subjective. Basically, you try to analyze the sentiment of the market to determine whether it is “bearish” or “bullish.” Although you cannot change market sentiment, you can often make a more accurate estimate and influence your trades.

Determine your margin. Depending on your broker’s policies, you can invest a little money and still make large trades.

• Lieutenant, if you want to trade 100,100 with a one percent margin, your broker will require you to put $1,000 into your account as security.
• Your gains and losses will increase or decrease the value of your account. Therefore, the usual rule is to invest only two percent in cash for a given currency pair.

Place an order. You can place different kinds of orders:

• Market Order: With a market order, you instruct your broker to execute a buy/sell transaction based on the market rate.
• Limit Orders: These orders instruct your dealer to execute a trade at a specific price. For example, you can buy a currency when it reaches a certain price, or sell when it drops below a certain price.
• Limit loss order: A limit loss order is a choice to buy currency on market price paper (predicting that its value will increase) or sell currency below market price to stop losses.

Look at your profits and losses. Most importantly, don’t be emotional. The Forex market is volatile and you will experience a lot of ups and downs. The important thing is to continue your research and stick to your strategy. Eventually, you will see profits.

Tips

• Before you invest for real, trade Forex with a virtual account. That way, you’ll have an idea of the process and decide whether Forex trading is right for you. When you are consistently making good trades on your virtual account, you can start trading with a real Forex account.
• Limit your losses. Suppose you invested $20 in EUR/USD and today, your total loss is $5, a loss you could have avoided. The important thing is to only use approximately 2% of your assets on each trade, and set a stop loss order for this 2%. Having enough equity to avoid downside risk allows you to stay in your trading seat and see profits.
• Try to focus on using only about 2% of your total cash. For example, if you decide to invest $1,000, try investing only $20 in currency. Forex price movements can be dramatic, and you want to make sure you have enough money to avoid losses.
• If your currency combination moves against you and you don’t have enough money to cover the period, your trade will be automatically canceled. Make sure you don’t make this mistake.
• Remember that a loss is really a loss only when trading stops. As long as your position remains, losses will only count if you choose to close the trade.
• 90% of day traders are unsuccessful. If you want to learn about the pitfalls that will allow you to avoid making bad trades, talk to a trusted money manager.
• Go report that your broker has a physical address. If one dealer cannot provide an address, then you should find another one to avoid being scammed.