Things You'll Need:
- Forex trading account
- Capital
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Step 1
Assess the risks. Currency trades are made with very low margin requirements. The ratio of currency bought to the money you put up can be up to 400:1, meaning you put up just $250 for $100,000 of currency. Even very small changes in price can generate a big profit---but they can just as easily wipe out your capital.
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Step 2
Learn how a currency trade works. All currencies trade in pairs. For example, the US dollar and the Euro are quoted as EUR/USD = 1.4025 when it takes $1.4025 to buy one Euro. The smallest possible price change (called a pip) is $0.0001. Other currencies have different size pips, but they are all very small as well.
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Step 3
Know how pricing works in Forex. A seller states an asking price and a buyer a bid. The difference, called the spread, is only 1 to 2 pips for wholesale currency trades. Retail brokers mark the spread up to 3 to 20 pips and keep the difference instead of charging a commission. If a trader correctly guesses how the market will move and the change is greater than the spread, she makes a profit.
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Step 4
Take the time to become familiar with the factors that affect exchange rates. Breaking news, inflation and interest rates, and a countries trade and monetary policy all affect currency exchange rates. In addition, Forex trading itself affects exchange rates as traders buy and sell currency. Learn to interpret trend charts.
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Step 5
Practice Forex trading. You can sign up for a practice account and "trade" currency in real time using standard trading software. This will give you experience in anticipating the market movements without risking any money.
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Step 6
Open an account with a Forex broker. Select a broker that offers real-time quotes and good online software but doesn't mark the spread up excessively (see Resources).
