Online Currency Trade

A First-Hand Look at Forex Trading

Money is an integral part of our lives. When money changes hands between two countries, the exchange rate determines the amount of money that is exchanged for another currency. It is the foreign exchange or forex market that decides the value of a particular currency vis--vis another currency.

Large companies, banks and other financial institutions exchange their money for another currency through the forex market. For example, a bank exchanges US Dollars for Euros. The value of the Euro may change due to movements and fluctuations within the forex market. So when the bank exchanges its Euros back to US Dollars, it may end up with a bigger amount of money if the Euro devalues or becomes weaker in relation to the US Dollar.

It's very difficult for an individual forex trader to enter the forex market unless one opens an account with a market maker or forex broker. Nearly three-fourths of the forex market is controlled by banks and large companies. A market maker provides specific bid and ask prices to forex traders and allow them to profit from changes in foreign currency values.

Almost everyone can open an account with an online forex brokerage firm. Most online forex brokers offer mini-accounts for as low as $200. But before you wonder how you can get rich from such a small investment, you should understand that leverage allows a forex trader to control an amount of money a hundred times bigger than the original investment.

If you invest $1,000 into your forex trading account, you can control $100,000 or even more. This allows for bigger profits even with the smallest upswing in the currency value.

However, high margin or leverage also makes your investment vulnerable to large losses. That is why most forex brokers provide stop loss orders and other devices to protect you from a big loss. If the downswing in a position you are holding is close to wiping out your entire investment, the online forex broker will automatically close your investment to prevent further losses.

Forex trading is a great way to make money easily and conveniently. But like any other investment, you should beware of the risks involved, since you can easily lose money as quickly as you can make it. Read articles and books on forex trading, attending seminars, and practice with a free demo account before you invest real money. This way, you can join the ranks of the exclusive club of successful forex traders.