Trading currencies in the foreign exchange market have become fairly easy and accessible nowadays. If you think you are ready for this type of investment strategy, there are several things you need to familiarize yourself with and you should also be prepared for the risks involved in this manner of trading.
Before you decide to jump in, you will need to know the basic terminology in the forex market, as well as being familiar with how the market works. Here’s how you can start trading forex:
- Learn the terms and understand the lingo. There are a lot of words you will need to know when trading forex, however, these are the most common lingo you will hear:
- Pip. It means “percentage in point” and it is the smallest value of the currency movement. A single pip is equivalent to 1/100th of the 1% of your currency.
- Base currency. This is the currency you are holding. For example, if you are in the United States, your base currency is the U.S. dollar.
- Quote currency. This is the currency you are going to buy.
- Bid price: This is the price that your broker is willing to “buy” or “bid” based on the currency you are holding.
- Ask price: This is the price that your broker will “ask” from you in exchange for purchasing your quote currency of choice. The asking price is always higher than the bid price.
- Spread. This is just the broker’s commission – the difference between the ask and bid price.
Once you are familiar with these basic terms, it’s still best to read up a few more forex books to broaden your knowledge about forex terms.
- Choose the right broker for you. Before you even start forex trading, you should choose your brokerage firm. Brokerage firms like FX Trading Pro can help you make trades on your behalf and they can even offer additional financial services for you. Working with someone who is credible and reputable means a lot of difference between profits and loses from your trades.
- Start analyzing the world economy. Since you will be trading in an international market, to make money in trading currencies is all about accurately predicting the movement of the worldwide economy. In order for you to become a profitable trader, you will need to convert your base currency into a quote currency that is set to rise in value, and then convert your quote currency back into the base currency when its value peaks. You should start researching political climates, GDPs and trading positions of those countries that you are interested in buying the currency from. You’ll then get a good idea on what quote currency is worth your investment and which countries have economies that are projected for growth.
- It’s time to make your first trade. When you have finally decided which quote currency you want to purchase, it’s time for you to place an order for your very first trade. Your brokerage firm should allow you to place an order to buy or sell currencies. Specifics of the brokerage platform may vary, however after you’ve finished placing an order, just sit back and let your broker do the rest for you.
As with any other type of investment platforms, you should be aware of the risks involved in forex trading. It’s best that before you do get started, read up on the latest forex news as well as forex trading books for your wallet and mind to be put at ease.
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