Trading in currencies can be incredibly lucrative and, once you know the basics, very easy. You can do it from home or on your laptop pretty much anywhere. It is a great way to boost your monthly income and you can even make quite a comfortable living from it.
Anyone can trade currencies, all you need is a computer or laptop with internet connection and a little capital with which to invest. While you do not need to be an expert to trade in foreign exchange (forex) you will definitely need to do a little research before you start.
Trading in pairs
Currencies are traded in pairs. Always. This is often a cause for a little confusion with new traders who often ask ‘why can’t I just trade again my own currency?’ While you probably could if you really wanted to, it would lower your trading options and also restrict your profits.
There are a good number of recognised, official currencies around the world but there are eight which are most frequently traded. These are the US dollar (USD) the Canadian dollar (CAD) the pound / sterling (GBP), the Swiss franc (CHF) the euro (EUR), the Australian dollar (AUD), the New Zealand dollar (NZD) and the Japanese yen (JPY).
Those with the mathematical minds will be able to work out that there are therefore 27 currency pairings. However, only 18 of them traded together on regular basis. Particularly when you first start trading forex, it is easy to have this small amount of trading options, it makes it much easier to make you comparisons. Consider as a contrast, the amount of choice you get on an equities market.
In order to start trading and making some money, you may want to start with a little market research. What is going on around the world? Look for items in business and forex news which would indicate that a currency is about to rise in value or perhaps drop. All kinds of things can affect the performance of currencies against each other, including a change in government, the release of official economy statistics etc.
Trading sites will display figures based on common pairings, showing how well each economy is doing against another. This is often shown in ‘pips’ as + or ? . The first currencies in the pairing is always the primary currency, for instance in EUR/USD, the primary currency is the euro and it is the currency you are purchasing.
The second currency in the forex pairing is the currency in which you are making your purchase. You would make this pairing and trade if you thought that the euro was about to strengthen against the dollar. If you are right, you then sell your dollars for more than you paid for them. The difference is your profit.
Obviously, the more you invest the more you will make but you need to be aware of managing your risks. You won’t get it right 100% of the time, no-one does. Do not start trading thinking you are going to make a million with a small capital fund, as this is incredibly unlikely. Start small and build up, do your research and trade wisely.
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