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This article was co-written by Michael R. Lewis. Michael R. Lewis is a retired Texas executive, entrepreneur and investment advisor. He has over 40 years of experience in Business & Finance, including the position of Vice President of Blue Cross Blue Shield of Texas. He holds a BBA in Industrial Management from the University of Texas at Austin.
There are 11 references cited in this article that you can view at the bottom of the page.
This article has been viewed 31,646 times.
Currently, the market has allowed mid-level investors to buy and sell many different currencies in the world. Most trades are done through forex – the online forex market – which is open for trading 5 days a week, and 24 hours a day. [1] X Research Resources With enough knowledge of the market and a little luck, you can trade forex and make money.
Steps
Learn about Forex Trading
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Check the exchange rate of the currency you want to buy with the currency you want to sell. Observe the volatility of that currency pair for a while.
- The exchange rate will be quoted for each currency pair. Based on the exchange rate, you can see how many currency units you can exchange from the currency you want to sell. For example, the exchange rate of USD/EUR is 0.91 which means that for selling 1 USD you will receive 0.91 EUR. [2] X Research Source
- Currency values fluctuate frequently. Any political turmoil or natural disaster can cause currencies to fluctuate. You must make sure you understand that exchange rates between currencies are constantly changing. [3] X Research Sources
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Business strategy development. To make a profit in trading, you will buy the currency that you predict its value will increase (base currency) with the currency that you predict its value will decrease (quote currency) . For example, if coin A is currently at $1.50 and you think the coin will go up, you can buy a buy contract, called a “call contract”, with a certain amount of investment. If the value of coin A increases to 1.75 USD, you will make a profit. [4] X Research Sources
- Assess the possibility of large fluctuations in currency values. The better a country’s economy is, the more likely it is that its currency will remain stable or appreciate against another country’s currency.
- Several factors affect the value of money such as interest rates, inflation rates, public debt, and political stability. [5] X Research Sources
- Some changes in the economy such as a country’s Consumer Price Index and Purchasing Managers’ Index can signal a change in its own currency [6] X Source
- For more information, you can see more at Trade Forex website.
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Risk awareness. Buying and selling foreign currency is a risky playground, even for professional investors. Many investors use financial leverage, taking borrowed money to buy more currency. For example, if you want to exchange 10,000 USD, you will be able to borrow with a financial leverage of 200:1. You can deposit a minimum of 100 USD into your margin account. [7] X Source of Research However, if you lose, you may not only lose your capital but also owe a lot more to your broker than in stocks or futures.
- In addition, determining how much currency value should be traded or when to make a transaction is also quite difficult. Currency values can move up or down quickly, sometimes within hours. [8] X Research Sources
- For example, within 24 hours in 2011, the US dollar fell 4% to a record low against the Japanese yen and then rebounded to gain 7.5%.
- So only about 30% of “odd” trades — the kind of trades that individual currency investors do — are profitable. [9] X Research Source
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Sign up for a demo account and test some trades to understand more about the trading mechanics.
- Some sites like FXCM allow you to make test investments with coins and practice currency trading with virtual currencies. [10] X Research Source
- Trade on the real market only when you are consistently profitable on the demo account.
Buy and Sell Foreign Currency
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Exchange cash in your local currency. You must have cash to convert to another currency.
- You can get cash by selling other properties. Consider selling stocks, bonds, or mutual funds, or withdrawing money from a savings or checking account.
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Find a forex broker. Virtually, private investors use brokerage services to place foreign currency trades.
- The online brokerage OANDA will often offer a user-friendly retail platform called fxUnity for beginners to buy and sell foreign currencies. [11] X Research Source
- The two online brokers Forex.com and TDAmeritrade also allow you to trade on the foreign exchange market.
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Find a broker with a low spread between the bid and ask prices. Forex brokers do not charge commissions or other costs. Instead, the company profits from the difference between the bid and ask prices, the difference between the selling currency and the buying currency.
- The higher the spread between the selling and buying prices, the more money you have to pay the brokerage firm. For example, if a broker buys 1 USD for 0.8 EUR but sells 1 USD for 0.95 EUR, the difference between the bid and ask prices is 0.15 EUR. [12] X Research Source
- Before signing up for a brokerage account, you should check the website or website of the brokerage firm’s parent company and make sure it is registered with the Merchant Futures Commission and regulated by the Commission. Commodity Futures (If this company is in the US).
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Start placing currency trades with the broker. You will be able to track your investment progress with intuitive software or other resources. Don’t “buy too much” money at once. Experts recommend investing only 5% to 10% of your total account balance in any forex trade. [13] X Research Source
- Pay attention to currency interest rate trends before making a trade. You have a better chance of making money if you trade against the trend than against the interest rate trend.
- For example, when the value of the US dollar increases steadily against the euro. Unless you have a good reason, you should just choose to sell euros and buy US dollars. [14] X Research Source
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Place semi-automatic orders. Semi-automatic orders are an important part of currency trading. A semi-automatic order automatically exits a position – i.e. allows for an automatic sale when the trade hits a certain level. With this order, you can limit your losses if the currency you bought starts to depreciate. [15] X Research Source
- For example, if you bought Japanese Yen with US Dollars and currently 1 USD is equal to 120 ¥, you can place an automatic sell order at a certain price threshold, such as when 1 USD buys only 115 . .
- The opposite of a semi-automatic order is a “take profit” order, which is set up to automatically sell when you reach a certain profit range. For example, you can set a “take profit” order to automatically withdraw your money when 1 USD hits 125 ¥. This order will guarantee you profit by exiting at that time.
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Save the profit in the trade. In many countries, you’ll need to save this information to file your annual income taxes.
- Record the price you pay for the currency, the price you sell it for, the purchase and sale dates of the currency.
- Most major brokerage firms will send you an annual report with the information if you don’t save it yourself.
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Do not invest too much. In general, because currency trading is risky, experts recommend limiting the amount you invest in forex trading, which should make up only a small part of your total portfolio. . [16] X Research Source
- If you fail — like about 70% of private currency trades — then limiting how much of your investment, as well as the proportion of forex trades in your portfolio, will help limit your investment. loss regime.
Warning
- Avoid trading with unfounded paranoia about a certain currency’s demise. If you have reliable information about future trends, it can help you create a strategy to buy or sell foreign currency for a profit. However, people who trade on hunches or emotions tend to lose money.
- Never invest more in a foreign trade than you can afford to lose if you lose. Remember that the playing field is all about gambling, even if you have very good information and a solid investment strategy. No one can predict with certainty what the market will do.
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This article was co-written by Michael R. Lewis. Michael R. Lewis is a retired Texas executive, entrepreneur and investment advisor. He has over 40 years of experience in Business & Finance, including the position of Vice President of Blue Cross Blue Shield of Texas. He holds a BBA in Industrial Management from the University of Texas at Austin.
There are 11 references cited in this article that you can view at the bottom of the page.
This article has been viewed 31,646 times.
Currently, the market has allowed mid-level investors to buy and sell many different currencies in the world. Most trades are done through the forex – the online forex market – which is open for trading 5 days a week, and 24 hours a day. [1] X Research Resources With enough knowledge of the market and a little luck, you can trade forex and make money.
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