| What is currency trading? | | | | bank to trade with? Not me, and I guess not you |
| Well, at its simplest it is exchanging one currency for | | | | either. But fortunately, you do not have to have all |
| another, just as you might do when going on | | | | that money for real. You are buying and selling at the |
| vacation to another country. You trade your own | | | | same time, so all you need to have is enough to |
| currency for the currency of the country you are | | | | cover any loss that might be made before you could |
| visiting. | | | | exit the market if your prediction was wrong and the |
| However, when people talk about forex (foreign | | | | currency that you bought started to fall. Your broker |
| exchange) trading or currency trading on the forex | | | | loans you the rest. |
| market, they generally mean something very | | | | This is called trading margins. On a $100,000 trade the |
| different. In this case traders are constantly | | | | margin is usually 1% or 2%, i.e. $1,000 or $2,000. This |
| exchanging one currency for another (buying | | | | is the money that you must have in your forex |
| currencies and selling others) with the aim of making | | | | brokerage account. |
| a profit when the exchange rates change. | | | | The amount you trade is determined by 'lots'. A lot |
| It is a little like trading in stocks on the stock market. | | | | may be worth $10,000 or more depending on the |
| Stock traders usually buy and sell stocks very quickly | | | | currency and the broker. So if you want to trade |
| compared with the average personal investor who | | | | $20,000 you would trade 2 lots and so on. |
| will take the advice of a broker but often keep | | | | There are now limited risk accounts, where you can |
| stocks for years or even decades. | | | | only risk the amount of cash you have on account |
| How Does Currency Trading Work? | | | | with the broker, thus avoiding margin calls. This is |
| The best way to demonstrate how currency trading | | | | done by allowing smaller players to trade forex using |
| makes money for the traders is to use an example. | | | | 'mini lots' or fractions of a lot. So you can trade |
| Let's say the current rate on the British pound to | | | | $1,000 by trading 0.10 of a lot. This reduces risk but |
| euro forex market is this: GBP/EUR 1.1200. That | | | | may cost more to trade. |
| means that to buy one British pound you will need | | | | More and more ordinary people are getting into |
| 1.12 euros. If you believed that the value of the euro | | | | currency trading these days. It has certain |
| was going to rise compared to the value of the | | | | advantages over the stock market and even if you |
| pound, you might sell 100,000 pounds, buy 100,000 | | | | know nothing about valuation of the different |
| euros, and wait. Then let's say a few days later, the | | | | currencies you can set up a forex robot, a complex |
| exchange rate has moved to: GBP/EUR 1.0600. Sure | | | | software program that will trade for you according |
| enough, the pound is now worth only 1.06 euros. | | | | to the settings you choose. Keep in mind that it is a |
| Now if you sell your euros and buy back 100,000 | | | | risky business and money can be lost as well as |
| pounds, you will have made a profit of 6% of your | | | | gained. Knowing what is currency trading gives you |
| investment, less any fees. | | | | an idea of whether you want to take the next step |
| This sounds like a huge amount of money. Who has | | | | towards becoming a currency trader. |
| 100,000 pounds or even dollars lying around in the | | | | |