Investing online in the currency market can provide you with many investment opportunities – and it’s much more exciting than watching your stock portfolio ebb and flow.
Forex, or the foreign exchange market, see upwards of $5 trillion in daily trades. To offer some perspective, the entire global securities market moves about $22 billion per day. Obviously, trading currencies can be lucrative, and today’s online platforms and market-focused systems have helped even the most novice of traders to gain a clear understanding of today’s forex market. In order to do so though, you’ll want to keep the following steps in mind to ensure that you position yourself for success:
“An investment in knowledge pays the best interest” – Benjamin Franklin
Understand the key forex trading concepts and terms – For example, the currency that you are selling is called the base currency, while the currency that you purchase is referred to as the quote currency. Understand exchange rates – that is, the amount you must spend in quote currency to receive the base currency. Also, long and short positions should be understood or else you may end up swapping currency in the reverse order than you intended! Bid and ask prices are a part of the equation, and the spread is the difference between the bid price – what a broker is willing to pay for your base currency, and the ask price – what a broker will sell your base currency in exchange for the quote. Take the time to fully understand these concepts to ensure that you are ready for the challenge of online investing.
Choose which currency pairs to trade – You can start by determining if the value of the U.S. dollar is poised for an increase or a decrease. If the dollar is forecasted to decrease, you may want to trade for other currencies. The question then becomes: “Which nation’s currency affords a good trading partner for my dollars?” You’ll need to keep track of several factors to ensure a responsible trade. Firstly, is the other nation stable, free from extreme political or social unrest, or other factors that can cause currency instability? Are major events about to unfold – like a national election or major political policy change that can cause a fluctuation in the value of the nation’s currency? Keep an eye out for GDP results, financial data, or other fiscal releases of information that can point to the value of the nation’s currency.
Know how to trade – Forex trading is a fast-paced investment activity that can potentially yield significant profits in a short amount of time. That said, it is important to understand how currency traders calculate profits. The word pip is a vital concept to understand. In this trading realm, a pip equates to .0001 of a change in currency value. For example, if your trade results in movement from 1.365 to 1.367, your overall currency value has increased by twenty pips. By simply multiplying the number of pips that your account has changed by the current exchange rate, you’ll effectively calculate how much your account has either decreased or increased in value.
Find the right online forex broker and platform – Opening an online forex brokerage account is an important step and the firm with which you partner must provide access to education, support, and training, as well as a reliable and easy-to-use trading platform. Online brokers must provide around the clock access to trading facilities and should constantly innovate in order to remain relevant in this fast-paced market. Economic calendars that focus on news-worthy events and relevant global data can help to guide trading decisions – so the better online platforms must include this, too. Factors like transaction costs and the quality of the broker’s website are important, but you’ll truly want to focus on gaining access to quality customer support, a transparent operation, and a simple user interface. Everything else is of second-tier importance.
Practice trading on a demo account – Before risking real capital on a trade, take time to practice your trading skills on a free demonstration account with virtual funds. This will allow you to trade using live data in a risk-free environment. You will also be able to test your trading strategies to see if they will potentially be successful.
Start Trading Online – Once you have activated your account, completed all necessary paperwork, and you have funded your brokerage account, then it is time to start investing online! In order to responsibly start the trading process, you’ll want to conduct some serious and relevant research on the targeted country’s economics. Start by looking at historical data, graphs, or other charts to gain an insight into any patterns that may help guide your trade. Think about the nation’s fundamental strengths and weaknesses and how it will react to pending global concerns or national events.
By following the above steps, you will be well on your way to investing your money online and trading. One of the most important aspects of successfully managing your account is to keep close tabs on your profitability – while keeping your emotions in check. It is normal to bite your fingernails a bit as you ride the rollercoaster of market volatility, but if you continue to conduct educated research and approach the forex market as one of the most exciting and rewarding investment opportunities available today, you’ll thrive.