Many people are interested in investing in currency; however, they are unsure where to start. Since you are reading this article, you may be one of these people looking for guidance on where to begin. In this article, you will be introduced to a step-by-step guideline to show you the path you need to follow to be able to make money in the foreign exchange market.
Step One: Learn the Lingo
It can be difficult to be proficient in investing if you do not know and understand the specific terminology associated with the Forex market. Because of this fact, you will want to learn and understand these terms before making your first investment. What you are spending is called the base currency, and what you are purchasing is known as the quote currency. The exchange rate defines the amount that you are required to spend to trade your base currency for the quote currency.
Step Two: Become Proficient in Reading Forex Quotes
Since you now know the terminology associated with the foreign exchange market, you need to learn how to read a Forex quote. There are only two numbers in a Forex quote: the ask price and the bid price. The greatest price an investor is willing to spend for a currency is the bid price. The lowest price that an investor will accept for a currency is the ask price. The difference between the bid price and the quote price is the spread.
Step Three: Open Your Brokerage Account
Since you now know the terminology associated with the foreign exchange market and you know how to read Forex quotes, it is time to choose a broker and open an account. It is important that you choose a broker that suits your individual needs, so conduct adequate online research and ask friends and family members if they know a broker that is reputable. Don’t forget to investigate the transaction fees which each broker charges for services. These fees can take a big bite out of your profits.
Step Four: Select Your Trade Currency
At this point, you need to choose a currency to trade. This will also require you to do a significant amount of study and research. Study global economic situations and then form predictions of future shifts in the worldwide economy. Some factors you will want to consider are politics, inflation, recessions and import/export dynamics between countries.
Step Five: Place an Order
There is also some terminology that you need to learn before you place your first order. If you wish to make a trade based on current prices, you will ask for a market order. When you place this type of order, it is immediately executed. Maybe you want to sit back and wait until prices reach a specified amount. If so, you should place a limit order. Limit orders are only executed when currency reaches your specified level.
As with any other form of investing, learning Forex trading requires not only practice, but also patience. It is important to remember that the currency market is extremely volatile, so you will experience both gains and losses. By following the five steps outlined in this article, your gains should outweigh your losses.