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Currency Trading Tutorial

Updated on March 17, 2010

Currency is a wild and crazy market, and it can either make you a lot of money or cause you to lose a lot of money because of the volatility. Because all of these currencies are fluctuating daily, and all throughout the day, there is potential to make some good money.

The world currencies are compared against each other because as one rises it is worth more against the other currency.  If you have ever gone on a vacation and had to exchange the currency, you may have been shocked at the end of your vacation when you tried to exchange the money back, you were either getting a better deal than you first did or a worse deal.

I am going to hopefully teach you the ins and outs of the currency trading market, so keep reading through for this currency trading tutorial.

Currency Pairs

Like I mentioned above, unlike stocks which are single entities, the currency market is based around currency pairs.  An example of this would be the United States Dollar (USD) vs the Euro (EUR) and would be seen as "USD/EUR".  This indicates that you are comparing the first currency to the second currency.  Deciding which currencies you would like to focus on is important.

The Base Currency

Since the currencies are listed in pairs, and since you're trying to determine whether or no one of the currencies will rise or fall against the other, you need to determine which one is the base currency.  In the pair listing, it is the first currency that is listed which is the base pair.  Since USD is listed first in the USD/EUR pair, then USD is the base currency.

The Value

Currency pairs aren't just listed as USD/EUR, instead they have a number that follows it.  So, you would see USD/EUR 0.7301.  That means that to get 0.7301 units of USD, you would need 1 EUR.

Opening an Account with a Forex Broker

The way that the currencies or foreign exchange markets (Forex) works is that you will first open an account with a broker.  You'll make an initial deposit, usually between $2000 and $10000 or more.  But, this number is a lot smaller when compared to the actual number you'll be trading with.  The reason is because your broker will give you a lot large percentage of money to trade with.  This can work out in your favor because when you are trading, you'll be able to leverage their money, which can increase your profits.  But, if you end up not doing well, then your losses can be magnified as well.

Currency Trading Software

A quick Google search of currency trading software or Forex software will give you a barrage of websites that are just sales pages trying to get you to buy their product.  Most of the times, you will see that the Forex software is just absolutely garbage, and just a way for the person to make money.  Think about it, if someone has software that can make them $1,000's daily, or even more, then why would they be selling this program you're looking at for a low, discounted only today price of $37.97!  Obviously the software doesn't quite work like they are advertising, and it takes a little bit more than just a piece of software to make you rich.

While I am not bashing all Forex software, there is definitely a lot of garbage out there.  Even if you pick the best software, there is still a human element that needs to be involved, and you'll need to know how to properly use the software as well as interpret it and then be able to pull t he trigger and do the buying and selling through your broker.

Learning and Studying is Important

Just as with anything, it is important to learn and study what it takes to succeed in this realm.  Yah, a very small part of it is luck, but you can't bank on the luck helping you to make money consistently.  You need hard work, and you need to be able to make solid decisions when dealing with foreign currencies.

I would suggest that you get a book or some other material to learn about how Forex and currency trading actually works.  While I have given you some basics here, there is quite a lot more involved.  Then, after reading the books and learning exactly what you're looking at, I would recommend that you study the market.  Watch for a week or two and just see how the market moves throughout the day and between days.  Since the foreign exchange markets are worldwide, they are going 24 hours a day.  There is a lot of change that happens in those 24 hours, and so learning and watching for patterns or signals is the best way to go.

Good luck in your currency trading and foreign exchange adventures!

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