To a beginner forex currency trading may seem very complex, but there is no need to make it as complicated as many people do. Put simply, it is a way of making money from the daily changes in currency prices by trading in currency on the internet. It is often called forex or FX trading, which are just short names for ‘foreign exchange’. It is a speculative form of investment, so it is risky. At the same time, it allows many people to make money from their home computers by working just a few hours each day.

One of the benefits of forex trading over stock trading is that it is a 24 hour market so you can trade in the evenings. Currency trading can be done in any part of the world, you are not limited to your own country’s currency. So you can take advantage of the different time zones which mean that the market is constantly open from Sunday night to Friday night.

In other respects you may think of forex currency trading as being a lot like stock trading. You are dealing in rising and falling prices, submitting buy orders for currencies that you think will rise and sell orders for currencies that you think will fall in value. You can make these trading decisions on the basis of world economic events or more simply, you can look at charts which show patterns and indicators that many traders follow to make successful trades.

Currency is always traded in pairs because it has to be an exchange: in order to buy one currency you always have to sell another. A common pair for beginners to use is EUR/USD, or the euro and US dollar. These are the most heavily traded pairs so costs are usually low and a lot of information is available, making it one of the easier and cheaper pairs to trade.

When you are trading this pair you are always either buying or selling euros, with the dollar as the quote currency. If you want to buy dollars when trading this pair, you have to place a sell order for euros, and that will automatically mean that you are investing in dollars. This is called ‘going short’ on EUR/USD. If you want to buy euros, that is called ‘going long’.

The aim, of course, is to place a closing order on the trade after the price has moved the right way so that you are in profit. Of course if it goes against you, you can lose, so you need to place stop orders. A stop order cancels out your trade at a certain level of loss so that you are protected from large losses.

Many brokers will accept a very small minimum investment to attract new traders. At the same time, the use of leverage and margins means that you can control large position sizes with a small account balance. You may only have to supply 1% of your trade amount in order to open a trade. The broker guarantees the rest, protecting their position with automatic stops. All of this means that beginner forex currency trading does not necessarily require a large investment.

Filed under: Forex Basics

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