Guide To Currency Trading

 

Trading in foreign currencies is a high risk business, and should only be undertaken after serious research and careful consideration of your investment appetite, and risk profile and a clear acceptance of what you are prepared to lose should the markets move against you.

Trading in foreign currencies involves buying the currency of one country and trading it against another. Typically you will be looking to use a home currency of sterling to buy other, convertible currencies such as Euro`s or US dollars. Any convertible currency can be traded these days through the foreign exchange markets via a broker. Many brokers now offer on-line access to trading in currencies and also provide the necessary software for actively managing your investment and gauging the costs and returns.

Currency markets are volatile and the value of one versus another can move significantly in a short period of time based on economic and fiscal stimulate or information. There is always a spread between buying and selling a currency – this margin is the broker`s fee for carrying out the transaction. Therefore, to make money, the bought currency needs to appreciate against the sold currency by at least the value of the spread. There may also be other fees to consider such as monthly charges for maintaining an account with a trader.

That said, trading takes place in a huge global market 24 hours a day, 5 and a half days per week. That means that you can decide when to trade to suit your lifestyle. Due to the level of competition, many firms offer trading with no commission and rely solely on the bid:offer spread.

Whilst accounts can be opened for small amounts (as little as $25 for some US traders), many will look for a minimum account value of at least $2,500. There is also the option to open a leveraged trading account where stakes can be magnified by up to 400:1. These should only be considered where the account holder has defined risk management strategies in place to mitigate what could be substantial losses.

The most popular currencies traded tend to be the largest and most liquid combinations. These include sterling to US dollars, Japanese yen and euro. Since the markets are so huge, spreads can be as little as 1 or 2 basis points. Less popular currency trades, for example sterling to Swedish or Norwegian kroner) attract spreads of up to 40 or 50 basis points.

Having decided that trading currencies is for you, you need to select a currency broker with whom to work. This may be based on referral or your own desk based research. There are many internet based traders that offer both the necessary software and free training areas with which to hone your skills. The best option is to review each brokers offering and test out the demo software to see if it fits with your personal needs. Also check on the minimum trading amounts and charges on account withdrawals as well as commissions or fees.

Use a website like ForexYard to build confidence on their demo software.
Finally, it is advisable to start small and gain experience without risking large sums of money. Avoid leverage betting until you are completely familiar and comfortable with the information and market data that you receive and how this can affect the movement of the currencies. As a remote user, you will be behind the main market in terms of your ability to respond to market, economic or political information – even with real time price feeds.