Currency Trading – What You Need to Know

Currency trading has taken the country by storm – and with good reason. Conducted online, the pace of foreign currency trading is fast (deals can be completed in seconds) and furious. With the advent of mini-forex accounts, it’s become incredibly easy to get into the market. You can get started with a Forex mini account with many online brokers for as little as £100 – and the potential for quick turnaround and profit is enormous.

Like any opportunity with a high potential for profit, though, currency trading offers a high potential for loss. Currency trading is not for the weak-willed or the cautious, despite many who will tell you that they have a foolproof system for making money hand over fist. If you’re thinking about getting in on the excitement of currency trading in the volatile worldwide market, there are a few things that you should know.

Currency Trading – What It Is

Currency trading is exactly what it sounds like. You buy and sell lots of foreign currency with the intent of seeing a profit. It’s a bit more complex than trading shares in firms and corporations because the profit is dependent on the relationship between pairs of currencies – the exchange rate. Here’s a simple example to illustrate how currency trading can make your money grow.

As an example: On October 9, the exchange rate for Indian rupees to the British pound is 86.66 – for every GBP you trade, you can buy 86.66 rupees. You sink £1000 into the deal and have 86,660 rupees which are worth £1000. Four days later, on October 13, the exchange rate drops to 84.05. You put in an order to buy 86,660 rupees worth of Brit pounds, and end up with £1026 and change back on your money. By December 1, the exchange rate climbs up again – to 88.08. You take your original stake plus the profit you made and buy 90,398 rupees, and hold tight while you watch the market shift and play. On January 5, the exchange rate drops to 85.33 and you suspect that it’s going to head up from there. You cash in your 90,398 rupees for £1059 and change.

That’s an extremely simplified version of how you can make money in foreign currency trading. Most traders don’t hold their currencies for long terms. In fact, the biggest money – and the biggest risks – are made in what’s called ‘day trading’, where the aim is to close out all of your trades over the course of one day. In order to grow your money at day trading, you either need to keep a very keen eye on the world currencies market and shift your investment around from spot to spot by hand – or you need to depend on a system.

Foreign Currency Trading Systems

Most traders in currency depend on a system to watch the factors that affect the value of particular currencies, and put in a bid to buy or sell when the factors converge. These systems are based on careful analysis of the market history and other factors. Many of the most successful traders will tell you that in order to be successful, you must have the right system – and you must trust it implicitly. You can devise your own system – or use one devised by someone else. The trick is to believe what the system tells you and allow it to make your decisions.

Currency trading is volatile and exciting – one might even say it’s addictive. You can make – and lose – a great deal of money trading a commodity that you never see or hold in your hand. Before you take the plunge into currency trading, take the time to research and study the market and learn about the various systems of trading and analysis. Just keep in mind that there’s no right or wrong system – only the one that works for you. Dive in – and have fun!