How to Make Money by Trading Forex
Foreign exchange trading, also known as currency trading or forex trading, is the practice of buying and selling currencies. Forex traders profit on changes in exchange rates. For example, if you swap 1 U.S. dollar for 1.5 British pounds today, you can sell your pounds when the exchange rate becomes more favorable --- say $1 for 1.25 pounds (in this case, you'd make 25 cents). While the procedure is simple, actually making a profit over time requires a great deal of preparation and expertise. Take time to learn the system, however, and the result may be quite rewarding.
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Instructions
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Preparation
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Educate yourself. Before you begin trading, even in a practice account, take time to read up on the forex market. Make sure you understand forex quotes and charts, along with the basic elements of fundamental and technical analysis. Get familiar with trading on margin -- borrowing funds to trade -- and leverage, using those funds to make large trades.
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Investigate forex platforms. There are dozens of online forex services that can be your tools for buying and selling. Review costs, features and company reliability. Use the National Futures Association's BASIC search to check on your top choices and make certain that they are in good ethical standing.
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Open a practice account once you've selected a forex platform. This allows you to familiarize yourself with the system and test your trading plan. Forex markets move very quickly --- you don't want to lose an opportunity because you don't understand your trading platform.
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Develop a trading strategy and plan. Determine what currency pair you want to focus on, and under what conditions you will trade. Test this plan in your practice account.
Trading
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Open a live trading account once you feel comfortable with the trading platform and process. Make an initial minimum deposit and provide proof of your identity.
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Place your first trades as your buy criteria are met. In general, buy when you believe that the U.S. dollar (or other base currency) is weak and likely to get stronger.
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Set up stop and limit orders. These orders are instructions to sell your positions if certain criteria are met. This puts your sales on autopilot --- the trade orders will kick in if the market starts to plunge, making certain you can get out of the position if things go badly.
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Sell when your sale criteria are met, as dictated by your trading plan. As much as possible, stick to your trading plan -- this will help you avoid emotional decisions and potentially costly mistakes.
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Practice patience. You can make a lot of money trading forex, but you can also lose a lot. Remember that conservative forward momentum is nearly always better than the risk involved with a skyrocketing rate.
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Tips & Warnings
Even after you're trading live, keep up with your practice account. Use this account to test new strategies and trading methods.
Forex trading is a high-risk endeavor. You can lose all of your money and potentially end up in debt to your forex broker if you trade poorly. Be cautious and avoid emotion. If you can't afford to lose it, don't trade it.
References
Resources
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