Beginning Traders

(Tue Feb 10th, 2009

Currency Trading

What is currency trading? Currency, also known as Foreign Exchange or Forex, trading is the buying and selling currencies. Why might you want to start currency trading? There are a number of good reasons. Low cost of entry, longer trading hours, liquity, low commissions, and leverage.

Let's compare features of currency trading to those of equities trading.

Liquidity - The currency market is the most liquid financial market in the world. 1.9 trillion dollars trade everyday. The US stock market trades around 200 billion dollars a day.

Trading Times - The currency market is open 24 hours a day (except weekends) which means that in the US it opens at 3:00 pm Sunday (EST) and closes Friday at 5:00 (EST). US stocks can be traded from 9:30 am to 4:00 pm (ET) on weekdays, extended hours not included.

Leverage - Depending on account size leverage can be 100:1. Some brokers offer leverage of up to 400:1, an EXTREMELY dangerous amount. Leverage in the stock market can be as high as 4:1, some day trading firms offer higher intraday leverage.

Trading costs - Transaction costs in the Forex market is the spread, the difference between the buy and sell price of each currency pair. There are no brokerage fees.

Minimum investment - Currency trading accounts can be opened with as little as $300.00. Equities and options accounts can also be opened for this amount but profits would be very low.

Trade execution - In the currency market, trade execution is almost instantaneous.

The most common currencies to trade are the Euro and the U.S. dollar, and the U.S. dollar and the Japanese Yen.

Getting started is easy. There are many online trading brokers, I'll give a list in a later post, and opening an account is simple. You must fill out a margin agreement. It is there to protect the broker since most of the money you'll be trading with is the brokers. Once your account has been established, you can fund it and begin trading.

Most brokers have different types of accounts, mini accounts allow you to get started Forex trading with only $300, standard accounts normally have a minimum of $1000 to $2000. The amount of leverage - using borrowed money - varies with accounts.

You Beginning Traders should get accustomed to currency trading by doing paper trades for a period of time. Paper trades are practice transactions that don't involve real capital. They allow you to see how Forex trading works without having to lose your shirt. Most brokers offer demo accounts. You should use demo accounts until you are comfortable with Forex trading and you are showing steady profits.

Currency trading is very risky and you should only start trading forex after careful thought and study.

forex for dummies

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