How to Trade Currencies

By Eric Hammer

If you've always wondered how to trade currencies and what the whole Forex market is all about, then you've come to the right place. Let's start with a few basic bits of information: First, just what is Forex anyway? Forex is an industry term referring to the trading of money from one country to another (FOREX is short for "foreign exchange). The fact is that the value of one country’s currencies as compared to other currencies goes up and down based on a variety of factors.

While Americans don't tend to think about it very much given that we have the U.S. Dollar which is considered a reserve currency (a reserve currency is a type of money that other nations hold on to in order to keep stockpiles of foreign money. The dollar is by far the most common reserve currency in the world with the Euro being the second most popular and then the British Pound, Japanese Yen and Swiss Franc being used by very small numbers of other countries). However, for people in most parts of the world, the value of their local currency matters greatly, both as a point of national pride and as a practical point, making imports and exports either cheaper or more expensive.

The way the Forex market works and the topic of our discussion, i.e., how to trade currencies, is quite simply that you sell one currency to buy another, for example, you might sell $1,000 dollars and buy euros at $1.25 per euro (thus netting yourself 800 euros). If the euro then goes up in value to $1.50, you sell the euros back and make a profit in dollar terms (your euros are now worth $1,200 and you have a $200 profit). Of course most currency traders tend to work at much higher amounts of money than this and truth be told, most don’t work in dollars or euros, preferring instead to trade in more exotic currencies that may show stronger swings, such as Brazilian Reals, Indian Rupees or Israeli Shekels to name a few of the more popular currencies for Forex trading.

How Much Can You Make?

Forex trading is very much like working in the stock market or the bond market. You can make very, very handsome profits in the hundreds of thousands and even millions of dollars if you play your cards right and pick currencies that are about to show a wild swing either up or down, however you can also see tremendous losses for the very same reason. Most people who do this full time do it not with their own money but as brokers for people who want to invest in the currencies market.

If you do work as a broker, according to Salary.com, you can expect your salary to range from around $112,000 per year to as much as $228,000 per year. Traders who work with their own money of course make as much as they make or lose as much as they lose based on their own trades.

Ways to Make More | Related Opportunities | Tips

Forex trading often goes hand in hand with stock trading, bond trading and futures trading. In other words, it's the sort of work that you might do if you work in a Wall Street based Investment Banking firm. Therefore, all these things are ideas you may consider when learning how to trade currencies.

Qualifications / Requirements

You will need to have at least a bachelors degree in a field such as economics, mathematics or statistics in order to become a professional Forex trader. To do this on your own with your own money however, all you need is plenty of money and a very strong stomach (as the numbers can change quite rapidly and you could make or lose a fortune literally in minutes).

It also helps to have a background in trading in general (stocks, bonds, etc. – any kind of finance background is helpful) and you need to be able to make decisions in a snap. Forex traders who decide to sit around hemming and hawing tend to lose fortunes and get out of the business very quickly.

First Steps

Start by going back to school (at least informally if not formally). Learn everything there is to know about Forex trading, including the terminology of the business, the ways that people make money doing it (commissions from trades as well as actual trades with your own money). Then, take the plunge yourself in a small way. Be sure to stay disciplined and don't spend more than you can afford to lose. Remember that this is a lot like legalized gambling. You can make it big, but you can also lose very big.

Resources

The Princeton Review: Forex Exchange Trader – A review from one of the most respected career guides available of the business of trading currencies for a living.

Market Traders Institute – Another company dedicated to teaching you how to trade currencies for a living. http://www.markettraders.com/
Forex.Com – a research site for professional Forex traders.


If you liked this page please let others know with one of these...


Other Relevant Pages

How to Invest in Foreign Currency

Diversified Investments Index

Work from Your Home Index



Every Way to Make Money | How to Trade Currencies