Forex Tips and Tricks Basic
Forex trading is essentially the buying and selling of currencies from around the world on a centralized foreign exchange system. The basic means of making money in this area is to capture the differentials in currency prices.
For example, if you purchased Japanese Yen you may be able to trade 104 Yen for every dollar. If the Yen then moves up in value against the dollar, you can buy back into the dollar at a better exchange rate.
Foreign currency trading is done in lots of $100,000. While this sounds daunting, the foreign exchange system allows high margin rates. Of course, margin increases your exposure to loss, so you really have to know what you are doing.
One recommended way to get around this is to trade a mini-Forex account, and to use a Forex trading software package. This option allows you to trade in $10,000 lots. Therefore, with the high margin allowances in the Forex, you could make trades with as little as $100. One cautionary note about small trade sizes however, is that you will need bigger pip differentials to make a decent profit.
Currencies fluctuate for a variety of reasons, and predicting these fluctuations can be accomplished with technical analysis, and observation of current events, politics, and the economy of the country whose currency you are interested in. Many traders choose to focus their efforts on one foreign currency and look for buy and sell signals by trading the dips and swells of that currency.
As you gain exposure to the Forex business you will notice the frequent use of the word "pip." The Forex market trades currency prices in pips. A pip means "percentage in point." In the Forex world this pertains to the fourth decimal point, which is equal to 1/100th of 1%.
Forex trading can be complex, so again, advanced training is highly recommended for new traders. Overall, here are some common Forex tricks and tips to get you started:
- Use a 15-minute chart to monitor dips and swells.
- The majority of currency trading focuses on the following currencies: U.S. Dollar, Japanese Yen, Euro, British Pound Sterling, Swiss Franc, and the Australian Dollar.
- As you gain experience you will not for bigger pip spreads in your exchange differentials. A pip spread of 20 is generally considered a good trade.
- Normal technical analysis techniques you may have used in stocks do not necessarily work in currencies. You will need to learn technical analysis specifically designed for Forex.
- Minimize losses by setting stop-loss orders.
- Be careful how you interpret tips and your gut instinct. Learn to base your trade decisions on verifiable facts.
