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How to trade FOREX
Foreign exchange trading – more commonly known as FOREX or simply FX -- can be extremely profitable. Foreign exchange trading allows you to make money on the exchange rate of one countries currency against another. Unlike some other investment vehicles, with FOREX trading it doesn’t matter if the market is on it’s way up or down, you can make money either way. Most of the time trading is done online; making money can be as easy as sitting down at your PC once a day and making a few trades.
Step 1
Find a broker
To get started in FOREX you should find a reputable broker (a simple google search will turn up hundreds of them), open a practice account, and get started learning to predict the market. Practice accounts provide a good way to learn the market without losing any of your hard earned money. Take the time to learn both fundamental and technical analysis. After spending a few months working with a practice account, you should find yourself winning more consistently. When you are predicting correctly more then 50% of the time, it is a good time to invest some of your own money into FOREX.
Step 2
Learn and practice
Most FOREX brokers allow for practice accounts. Many brokers also offer materials that will help you learn Fundamental and Technical analysis. Taking the time to learn how to analyze the markets can help you become a master at making predictions, and staying consistently profitable with your trades.
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Step 3
Understand FOREX
With the instantaneous nature of FX trading you are never stuck in a trade. You can buy or sell at will with a simple click of your mouse. The markets are open 24 hours a day during the week, so trades can be made anytime you want. If you take the time to learn, the potential to make money is only limited by your willingness to learn. FX trades are completed through a broker. The broker provides you with software that allows you to make your trades.
Step 4
Making Trades
When you make a trade through your broker, you are basically buying one currency and selling the other. The profit you make is on the exchange rate of the currencies as it goes up or down. Profit is calculated in pips (the fourth decimal place on most quotes). Most FOREX brokers allow for leverage; some as high as 400 to 1. If you are trading with a leverage of 100 to 1, this means that for each $100 you deposit into your trading account you can control $10,000 worth of currency.
Step 5
Calculating earnings
At the time of this writing the USD/CAD (US dollar, Canadian Dollar currency pair) is quoted at 0.9700. This means that to buy one Canadian Dollar you would need 0.9700 U.S. dollars. FX is usually traded in lots of $100,000 or mini lots of $10,000. Let’s assume that we can predict that the currency pair is going to go up in the next few hours. In this case we are going to buy (go long) the currency pair. We will also assume that our broker allows for 200 to 1 leverage (this is fairly common), so to buy one lot of $100,000 we only need to put $500 of our own money on the line. With our brokers software we make the trade and buy 1 lot of the USD/CAD currency pair. Over the next few hours our prediction is correct and the currency pair climbs 50 pips(points) to 0.9750. Now it is time to sell our trade at a profit of 50 pips.
Now let’s calculate our profit on this trade. With one lot traded and a profit of 50 pips that works out to: 0.0001(1 pip)/0.9700 * $100,000 (amount of currency we traded) = $10.3/profit per pip. Now we multiply that by 50 and we just made $515 in a few hours and we only put $500 on the line to do so. You don’t really need to know these calculations, your brokers software will do it for you.
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