Currency Trading FOREX If you want to generate extra earnings, one of the options you could have is trading Foreign Exchange or day trading forex market. In case you are accustomed to trading on a stock market or on features exchange, you know that you usually trade papers representing companies on stock market. In this [...]
If you want to generate extra earnings, one of the options you could have is trading Foreign Exchange or day trading forex market. In case you are accustomed to trading on a stock market or on features exchange, you know that you usually trade papers representing companies on stock market. In this case, you also trade papers that represent the whole countries.
In FOREX, trading instruments are currency pairs such as EURUSD, USDCAD, USDJPY, and so on. When you buy EURUSD currency pair, you sell your US dollars and buy Euros. When you are said to “close this position”, you will do the reverse, sell those Euros and buy back your US dollars. Hopefully you will end up with more US dollars than when you started, but it will depend how the Euro will behave against the US dollar, so you will either gain some money or loose some money.
Currency Trading FOREX usually involves leveraging because prices of currencies do not change that much as stocks do. Leveraging means borrowing large amounts of money from the broker instantly. Without it, you would have to bid extremely large amounts of your own money to make any noticeable profit.
Normally, broker will gladly (and automatically) extend a leverage to you when you are trading currency with them. Most common leverage is 100:1, sometimes 20:1 or 50:1. This really means that for each dollar you trade, broker adds 99, 19 or 49 respectively from his own money. Less common is 200:1 because it makes your trading extremely risky.
To trade currencies, you can use a regular trading platform such as MetaTrader. A lot of large brokers will allow you to use the same software, same platform and same broker to trade FOREX, stock market and perhaps other markets at the same time if you want it.
Currency Trading FOREX is considered to be more risky than stock trading due to a very high volatility of the currency pairs offered as instruments. However where there is higher risk, there is usually higher return, and high volatility will let you have bigger profits (and bigger losses of course if you are not careful).
To trade successfully, you will need a few additional things like a good trading system, which is just a very well defined set of rules for entry and exit conditions, a good, balanced money management system and balls of steel to trade currencies. This will allow you to have a lifestyle of your choice by just being a FOREX day trader.
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