The Forex market is a lucrative source of income for many Forex traders. Apart from that, learning how to do Forex trading can be an exciting and eye opening venture to many on the potential of the Forex trade market. To put it into perspective, the global Forex market trades approximately 4 trillion dollars per day. It is an easy and simple process to learn how to maneuver the activity and subsequently make profits or money out of the venture. And as the popular cliché goes ‘you have to use money to make money’. Forex trading is basically the trading of currency. Thus, to get started, you have to invest some capital in the venture. Trading Forex is a speculative activity whereby as a trader, you are speculating that the value of the money (currency) you bought will increase compared to the base currency.
Before you venture into Forex trading, it is vital to familiarize yourself with the basic Forex terms. The base currency is the currency you are selling while the quote currency is the currency you are buying. For example, in a currency quote or list of EUR/USD, the EUR is the base currency while the Dollar is the quoted currency. Then there is the bid price which represents the optimum price to sell your currency. It is also the price at which the Forex trade brokers are willing to buy the base currency for the quote currency. Ask price on the other hand is the optimum price at which you are willing to purchase currency. Or, it is the best price at which the broker is willing to sell the base currency for the quote currency.
The base currency is taken to be 1 unit in the currency quotes. An investor can make money in Forex trade by either the quoted currency increasing in value or the base currency decreasing in value. For example, if the Euro/USD quote increases from $ 1.1451 to 1. 1461 on a $100,000 lot, the investor will make money amounting to $ 100,000 (1.1460-1.1450).
After these basics, the trader will open an online Forex brokerage account. There are many brokerage firms in the industry to choose from. Before going live, it is advisable to use a practice account. Nearly all Forex accounts have a practice or demo account. The demo account will help you to know the different aspects of trading Forex. Next, since Forex trading is betting on currencies, study the market first. Analyze for instance the political environment of the currencies. Also, start small.