Foreign Exchange Market
- 1). Search for a suitable foreign exchange broker. Several options are FOREX (www.forex.com), Oanda (fxtrade.oanda.com) and Citi (www.citifxpro.com).
- 2). Learn about Foreign Exchange Market exchange rates and trading rules before engaging in any real time transactions. Exchange rates are the rates by which one currency is exchanged for another. According to FinancialWeb, these rates are quoted as "currency pairs," such as EUR/USD (the Euro paired with the US Dollar). Traders should seek the lowest exchange rate possible. Review all relevant trading rules and understand fee structures by reviewing information available on each broker's website.
- 3). Sign up for a practice account with a foreign exchange broker and engage in practice trades, if available. Practice trades work just like live trades, but the trader experiences no risk as there is no money being traded in the live market. Practice accounts teach users about margins, capital, leverage, exchange rates, and other core terms. For example, say a trader deposits $5,000 US Dollars in an account, and the account has a margin of 1:20. The trader controls $100,000 of capital. This amount is the trader's leverage. Say the trader thinks the dollar will drop against the Euro, and the exchange rate is 1.305. The amount of Euros the trader would receive is 100,000 divided by 1.305 or 76,628 Euros. If the rate subsequently moved from 1.305 to 1.318, the trader could then exchange the 76,728 Euros for $101,000 USD, a profit of $1,000 USD. The trader made $1,000 profit because the exchange rate increased during the time the trader held the Euros.
A comprehensive guide of practice accounts, complete with trial durations, account sizes, and other features is available at the FXStreet website, www.fxstreet.com/brokers/demo-account/.
- 4). Engage in live trading once you are comfortable with how the foreign exchange market works. Different brokers have different minimum capital requirements, or minimum amounts that traders must deposit in their accounts. Common funding methods include deposits through credit/debit cards, bank wire, paper checks, PayPal, and other options. Consult your broker for specific deposit methods.