If you’re curious about learning how to trade forex then first I should probably explain a little bit about it. Forex is the act of betting one currency against another in order to secure a return on your money. Basically, you are placing a bet on whether one currency will increase in value against another. The forex market is enormous – even bigger than the New York Stock Exchange. This is because it encompasses all the currencies in the world.

Many people become confused or are otherwise overwhelmed by currency trading because of the frequency of changes it goes through. Values can go up everyday and the volatility can be nerve racking for some people. They also don’t understand how it works and are afraid of losing their capital. If you have the right knowledge and skills you can make a lot of money and take advantage of the currency market.

How To Trade Forex – Understanding Margin Accounts

Trading on margin can both be extremely advantageous and extremely disastrous if you don’t know what you’re doing! A margin is where you borrow money from your broker to give you greater trading power. This means you can increase your $1,000 investment to as much as $100,000 of currency control. This is great if you don’t have much in the way of start up capital but want to make some monumental trades. The bad? You are gambling with money that does not belong to you and that can get you into trouble quickly.

Don’t take these decisions lightly and make sure you read everything you can and ideally practice with a free forex demo account before making any risky decisions! I can recommend eTorro’s platform. They also have lots of tools to get you started in learning the ins and outs of the currency market. You can participate in their forums and learn from real traders and watch their moves as well!

You can use their platform to practice in the currency market doing paper trades. This is a trade that holds no actual cash value. You can simply see your performance and learn how the market works. This is great to show you if you need to improve your skill level before making any hasty money decisions!

Many people enjoy the currency market because they are relative to each other. That means that if one currency decreases in value then another one goes up. It’s also less likely for a currency to ‘go out of business’ and crash like a company traded on the US stock exchange. It would take an economic melt down of an entire country for that to happen. That’s not to say you can’t lose a lot of money quickly if you’re not careful though!

How To Trade Forex – Understanding Terms

All currencies on the forex market are traded in pairs. This is what I was talking about earlier in betting one currency against another one. You could for example purchase the Euro against the US Dollar. In this instance you believe that the Euro is going to go up in value against the US Dollar. If it does then you would then be able to sell your pair at a profit and make money. The simple version of the currency market is like everything else. You buy for less and sell for more to make money. If it were this straight forward then everyone would make money. (Make a note that your currency bet refers to the one on the left of the pair quote.) *Ex AUD/USD means you are betting on the Australian Dollar.

A pip is the smallest amount a price can change. The spread is the difference in price between buying and selling a currency pair. These numbers will be important to you because it will gauge the profit if any you will make when you sell your currency pair.

If you’re doing a spread bet you’ll need to decide how much money you’re placing on each point. You could buy a pair for say $5 per point. With a spread of 1.9850/1.9853 if your chosen pair strengthens you could close your position and sell your set for 1.9865/1.9868 and make a profit of 12 points which would put your gain at $60.

As you can see the forex market has a lot of distinct advantages. Some other things you may find interesting? Unlike the stock exchange the forex market is twenty four hours. It’s the Circle K of investing! You can trade all day and all night if you want to with no holidays and no sleep. This could get a little maddening though knowing you could be losing money while you’re sleeping.

As stated before there’s always a bull market in the currency game – so many people enjoy that. Though I have a similar opinion of the stock market. There’s always somebody making money if the world hasn’t ended. They’re just selling canned goods and bomb shelters now instead of designer hand bags.

Looking for a good forex broker? If you start using eTorro you can copy the best forex trader’s strategies. Yes, you read that right. They are a social broker. That means you can follow and mimic the traders who consistently have the best returns to copy those returns yourself. Click here and get up to a $1,000 Free Bonus to start Trading!

Additional Resources For How To Trade Forex

Additional Reading:

Download a FREE Forex Ebook

Best Forex Signals