How To Trade Currency: The Basics

If you are considering getting involved in forex trading, it is essential that you know the basics of how to trade currency. Even if you plan on using an automated forex trading system (or forex robot) you will need to understand something about what it is doing in order to set it up right.

Forex trading and currency trading mean the same thing. You will be trading world currencies on the foreign exchange market. Forex and FX are simply abbreviations of 'foreign exchange'.

If you do not use a robot then you will need some system that will help you sort out whether a country's currency is rising or falling, so that you can decide whether to buy or sell the pair that you are trading. You always have to trade a pair of currencies because you are exchanging one currency for another. A popular pair for beginners is EUR/USD, the euro and the US dollar.

Currency trading systems are usually based on technical analysis, which means watching price movements and indicators on charts. Most brokers supply this kind of data or if you do not get everything that you want from your broker, you can sign up to one of the many online forex charting services.

You can get started for a very low initial investment these days. Competition between brokers and the ease of access through the internet has meant that brokers are offering mini and micro forex trading accounts to encourage the smaller investor to get involved.

Costs are generally low too. Most brokers do not charge a fee or commission, but make their money from the difference between the bid and ask prices of the currency pair (that is, the different prices depending whether you are buying or selling). This is good for small investors who can make many small trades without paying any fixed fees. This is one of the reasons why more and more private individuals are getting into forex and wanting to know how to trade currency.

The forex market is open 24 hours a day from Sunday evening to Friday evening (or Monday morning to Saturday morning if you are in Australia or Asia). This can be very convenient if you have a day job and want to get into trading in the evenings. It is also a huge market, with deals totalling almost $4 trillion a day. Prices move fast and there is a lot of money to be made.

Of course there is also a risk. Like any speculative investment, you may lose more than you make, especially in the beginning. You should be prepared to possibly lose your investment funds so do not trade with money that you need for other purposes.

It is important to stick to a system exactly and keep clear records of your trades. If you do not do this you will be shooting in the dark and the net results could be damaging. You need to be sure of what you are doing and able to look back and see what worked and what did not work.

There are many forex trading systems sold online but remember that you only need one profitable system to make money. It is not a good idea to try to use more than one system, and certainly do not switch from one to another all of the time, because that will not work for you. Being consistent in your trading is the key.

Forex trading is risky, but it can also make you a lot of money. Follow these pointers and you will soon have mastered how to trade currency.