Some people think that forex trading (foreign currency trading) is only for big companies and banks but that is far from the case.
Many people just like you and me are using their computers and even smartphones to trade currency and make money from home.
It’s not uncommon to earn cash on the side with this side hustle but you can even become a full-time trader. However, it’s not a get rich quick hustle and you’ll only make money with a thorough understanding of the currency trading basics.
Getting Started with Forex Trading Basics For Beginners
Forex or foreign exchange trading is simply the act of exchanging one type of currency with another. It only gets complicated if you’re looking to make an actual profit from trading foreign currencies.
Successful and profitable Forex trading entails intelligent and informed speculation on fluctuating currency values. As opposed to simply enduring exchange rates when you’re spending money in a different country, well-informed Forex trading is a legitimate way to invest your current capital.
If you’re just getting started, here are a couple tips to keep you on the right track:
1. Get to Know the Big 8
While the stock market provides investors with thousands of trading options, the current Forex market is mostly made up of just eight of the world’s strongest currencies. Keep your eyes on the United States Dollar, the Euro (mainly via Germany, Italy, France, and Spain), the Japanese Yen, the UK Pound, the Swiss Franc, the Canadian Dollar, the Australian Dollar, and the New Zealand Dollar.
Investopedia reveals that these economies have the most sophisticated (as well as the largest) financial markets on the planet. As a Forex beginner, focusing on these eight currencies provides the most opportunities for earning interest income.
2. Understand Forex Trading Leverage
Leverage gives you the chance to trade more money than you actually have due to current market conditions. For instance, if your Forex broker allows you to trade at 50:1 leverage, you can actually move $50 for every $1 currently in your account.
On a larger scale, this means being able to use $1,000 of capital to control $50,000 in trades. Before you get too excited, The Balance expounds on why this isn’t always a good idea. Basically, both your potential gains and losses are affected by Forex trading leverage.
At 50:1, the potential for interest income is extremely high – and so is the potential for huge loss. If your preferred currency loses value while you’re trading at this amount of leverage, there’s a risk that you’ll lose all of your initial capital within days.
3. Study Emerging Market Currencies
While it’s important to get to know the biggest eight currencies in the world financial market, it’s also vital for beginning Forex traders to understand emerging market currencies. One such currency is the Mexican Peso, especially when it’s paired with the US Dollar – also known colloquially as the “Trump Trade” due to fluctuations prompted by recent US-Mexico trade policies.
FXCM suggests that 2.1% of all daily Forex trading by volume in 2016 was via the USD/MXN pair. This means that it’s only slightly behind the US Dollar and Canadian Dollar pair as well as the US Dollar and Chinese Yuan pair (which is at 4% each). Meanwhile, other important emerging currencies include the Singapore Dollar, the South Korean Won, and the Hong Kong Dollar.
4. Follow the World News
Understanding the inner workings of Forex leverage, emerging market currencies, and the current biggest 8 currencies in the world entails following current global events.
Crises, technological developments, terrorism, new discoveries, political upheavals, and environmental events all contribute to how the values of different currencies fluctuate on a regular basis. Sometimes, having an insider’s perspective into Forex trading simply means being aware of current events and the implications on the currencies that you’re interested in trading.
Forex trading is one of the fastest ways to make (or lose) money, and you can do it all from the comfort of home. However, if you don’t want to face the risks that come with Forex trading, There are other ways to stay at home and still make extra bucks.
Thanks for reading!
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Some questions for you:
Do you like forex trading as a way to make extra money?
Do you have any currency trading strategies?