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Foreign Exchange or FOREX is the largest market in the world. The
biggest traders on the currency exchange market are governments, banks,
and corporations. More money is traded on the FOREX in one hour than is
traded on the New York Stock Exchange in one day. With all this money
flying around it isn't hard for some of it to land in your pocket.
Currency trading is very simple in comparison to the NYSE. FOREX only
has about 30 currency pairs vs. the NYSE's universe of thousands of
stock offerings. In FOREX trading, currencies like the dollar and the
euro are paired with each other in order to produce a buy/sell option to
the trader.
1.How FOREX Trading works.
When you're playing the FOREX market there are two choices: buy or
sell. Since there are only about 30 or so currency pairs(example:
British Pounds vs U.S. Dollars or Euros vs Swiss Francs) the market
isn't very wide.
A normal trade goes something like this: Say that 1 euro is worth $1.30
U.S. . From this price you can either buy euros, hoping it will go up
higher, or sell euros, hoping it will go lower vs the dollar.
When you make your trade you buy or sell in 'lots'. A lot is a larger
block of money that your brokerage is offering a piece of. The overall
size of a lot is not relevant to trading FOREX accounts because you
determine what price to put on a currency price move.
Since currency prices move very slight amounts the pennies are sub
divided into 'pips'. These are hundredths of a penny in the case of the
USD-EUR pair. So using our example earlier; the Euro is worth 1.3000 and
it goes up to 1.3025, that's a move of 25 pips.
When you place your trade a pip can be worth 1 penny, 1 dollar or
even more. That 25 pips could be worth 25 cents, 25 dollars or more.
When you close your order the money is yours. Simple.
2.Setting up a FOREX account.
The are dozens of online FOREX brokerages. These brokers make trading
FOREX simple fast and easy. I am a fan of one called IBFX but most of
the brokerages are the same with a few slight differences like deposit
methods and minimum balance. I would look at a few before deciding to
open a live money account.
Once you've decided on a broker you'll download an account interface
program, sort of like a control panel. These programs allow you to
monitor all aspects of the currency markets from real time charting, to
news headlines, to your trade execution. FOREX interfaces can monitor
your trades and even automatically place them for you. Without these
great programs trading online wouldn't be as fun.
When trying out any FOREX online broker always open a demo account
and get a full understanding of their software and client relations. I
prefer my broker be located in the United States, that way I retain at
least a slight amount of recourse-ability.
3.Develop a system of Expert Advisers.
Expert Advisers sound like people who tell you how to trade, but in
reality they are automated trading programs that execute trade for you.
Expert Advisers are computer algorithms that are programmed to read a
certain market condition and execute a trade in response. They can be
extremely profitable but you must understand that Expert Advisers are
like golf clubs: They work as long as they are used under the correct
FOREX market conditions.
Expert Advisers are easy to find. Many are published for free and
available in your FOREX Interface program. There are also independent
programmers who are perfecting entire systems of FOREX trading centered
around these Expert Advisers, they charge hundred to thousands of
dollars for these simple programs. The idea behind the big price is the
promise of big returns. Surprisingly some of them work extraordinarily
well.
4.Money Management
I am a firm believer that it is very easy to make money on the FOREX.
The hard part seems to be keeping it once you've made it. Since FOREX
accounts are based on how much money you put into them, there is always a
chance that a bad decision can wipe it all out quickly. Very turbulent
market moves can happen with major banking news, like an announcement of
a government bailout. This can send a currency pair rocketing hundreds
of pips. To avoid losing all you money you need to use money management.
Money management is the practice of not leaving yourself exposed to
wipe outs on the FOREX. The easiest form of money management is to take
your profits and move them into a separate FOREX account. That way if
account A is wiped out account B still has your profits. Sort of like
blackjack except in FOREX the odds that you'll win are much higher so
the same bet over and over is actually a smart idea.
Try a demo account for the FOREX. If you make money with the demo
account, you will make money with a live account. I once put $250 into a
FOREX account and had $1600 within a week. Solid money management and
modest daily goals will make you a FOREX Millionaire in no time.
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