what are the mechanics of doing currency trading?
Saturday, March 27th, 2010 at
11:10 am
Can someone with experience in this area please answer?
How does ‘currency trading’ work? What kind of brokerage account is needed? Do the standard brokerages houses do this? I have an account at Schwab.
What is "Forex"? How do I buy currency contracts?
Thanks for the help!
Tagged with: brokerage account • brokerages • contracts • Currency Trading • schwab
Filed under: Forex Trading
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Great question Antonio.
The Forex (Foreign Exchange) market is the largest financial market in the world and is open 24 hours a day. In fact, the Forex market is larger than all other equity markets combined. Unlike stocks, there is no central exchange where Forex transactions take place. So retail Forex traders trade the Forex market through Forex brokers who provide pricing and facilitate the currency trades.
Forex is traded through the internet so you can trade it from anywhere you have internet access. You can leverage your Forex account many times its actual value (up to 400:1 but 100:1 is most common) which provides for great profit potential as well as great risk. Forex transactions are traded in pairs so for instance when you buy the EUR/USD you are buying Euros while simultaneously selling Dollars. Because you both buy and sell with each transaction you can make money no matter what direction the market moves.
It is also fairly easy (maybe too easy since many lose their money) to start. Most brokers only require a couple hundred dollar minimum. Also, almost all brokers offer free practice accounts with no time limit so you can practice until you are ready to go live. The one key to not losing your money is this: Don’t start trading until you know what moves the market and how to trade it. If you start with live money too fast you WILL lose it.
Those are some basics to help get you started. Good Luck!
Basically, you’ll need a special type of account that allows currency trading. I think forex might have them too but I’m sure any large broker like schwab would have them too. Don’t expect to make large % gains in trading currency, don’t be fooled. You’ll be putting down ~ $100,000 to make $10-$100. It really takes alot of money to make money trading currencies because the margins are not large and banks usually are quicker to jump in and sweep up all the gains. Nevertheless, I haven’t done it but be careful. If you have large amounts of money they’re probably other things to get into. Save the currency trading for people like warren buffet, steve jobs etc