Making Money With Currency Exchange Rates

The value of currencies fluctuate minute by minute, 24 hours a day, 5 trading days a week. It is this constant change in the rates of one currency as opposed to another that allows currency dealers to make money. There are several different ways to make money with currency exchange rates. You can open a commodities or FOREX account and you can purchase the actual physical currency.

Difficulty:

Moderate

Instructions

Things You'll Need

• Cash or assets Commodity trading account FOREX trading account

1. Study and learn as much as you can about both the short-term and long-term outlook for the currencies of different countries so you have some basis for the trading decisions you make.

2. Buy and take physical delivery of a currency that you feel is about to appreciate in value vs the U.S. dollar. You can purchase currencies online, through local major banks, or through certain local currency dealers. Check on fees associated with both buying as well as selling the currency you are considering. Often the fees are expressed as a BID and ASK price. When you buy a currency you are required to pay the ASK price and when you sell you are required to accept the current BID price. The BID price is always lower than the ASK price. You can make money as long as the BID price at the time you are selling is greater than the ASK price was at the time you purchased the currency.

3. Open a commodities trading account. Commodity accounts can be opened through many local stock and commodity dealers or online. You may be required to show proof that you have sufficient net worth or experience in the markets to open a commodity account. Once your account is open and funded you can purchase options and futures on many of the world's major currencies. If the currency you have chosen rises in value compared to the U.S. dollar you earn a profit. If it drops in value, you can lose money.

4. Create a currency spread using your commodity trading account. This is where you buy one currency and sell another, hoping that the gap or the spread between the two currencies will widen. As the spread widens you make money and as the spread narrows you lose money.

5. Open and fund a FOREX trading account. The FOREX exchange ONLY trades currencies and is open for business 24 hours a day, 5 days a week. FOREX exchanges always involve buying one currency and simultaneously selling another. If the exchange rates between those two currencies widens you make money and if it narrows you lose money.

Tips & Warnings

• Do not invest in currency exchange rates if all you are doing is guessing. Have some sound basis for the decisions you make.

• Currency trading is not for everyone. Make sure you understand what you are doing before you place a trade. Past performance is not a guarantee of future results. Futures and options trading can be risky. It is easy to lose all of your trading account trading in currency futures or options and if you trade on margin you could lose considerably more than you entire trading account. Only trade with risk capital that you can afford to lose.

Resources

• Open a Practice FOREX Trading Account
• How to Trade Commodities