TRADING FOREIGN CURRENCY

I am still learning how to trade foreign currency but I thought I’d take this opportunity to share on my blog what I’ve learned so far. Mainly because I’ve had several people ask me about how to get started and what some of the terms when they have delved into it. I want to preface the blog by saying I am in NO WAY an expert and I am not suggesting this is for everyone or without risk. With that disclaimer out of the way… here goes…

I signed up with a company through the CNBC stock/currency contest. As a side note, sign up for the contest. It’s free and good practice trading stocks and currency to see how you can do without risking your own money. FXCM is the sponsor of the currency trading for the contest and offers a $25 to sign up for a real account with no strings attached. You can play with their $25 before deciding if currency trading is for you and fund additionally with your own money. $25 doesn’t sound like much but you trade on margin and it can grow rather quickly. The advantage with this company is you can’t lose more money than you deposit. Or if you were to lose the $25, you wouldn’t owe more money. You’d only lose their initial $25 they funded for you for free!

Margin defined: “Trading on Margin,” the ability to trade a position larger than the amount of money in your account. Margin is expressed as a percentage of position size, for example 5% or 1%, or in monetary terms, such as $50 or $2,000. FXCM Micro sets margin in terms of required margin per lot. One lot of a FXCM Micro account is 1,000 units of currency. (A unit of currency could be one dollar, one euro, one pound, etc.) Therefore, $2.50 in funds allows you to trade 1,000 units. (For simplicity, FXCM Micro requires $2.50 in funds for every 1K lot traded, regardless of the currency pair you choose to trade.)
So basically, you can trade in small increments of 1,000 units of currency at a time from the $25 deposited into your account by FXCM. When I started I set out to limit the losses and gains for each trade of $5. After deciding which unit I wanted to buy, I would click on the stop order and set it to automatically close the trade if it trended to a $5 loss and clicked on the limit order to close at a $5 gain. Again, seems like small amounts but for the learning purposes it is very helpful. I was able to grow the account to about $200 within the first two weeks. It was enough time to teach me what I needed to look for on the charts.

FXCM offers a very good program with charts and trending that you can follow easily. I watch the trading on the charts and monitor for a ‘bottom’ or ‘top’ of the graph. If it appears the currency has been traded down, I would place a buy order in. If it seems it has been traded up, I place a sell order in anticipation that the chart is cyclical and the trading will move the price down and I will sell. Here is an actual example from my account: on 1/19 I bought 4 units of GBP/USD (Great Britain pound/US dollar) @ 1.45088 because the charts showed it was near a high in the recent trades. Seven minutes later the price went up to 1.45320 and I sold for a profit of $5.68. Again, it isn’t enough to make a huge difference in lifestyle but if you can average a $5 profit every 15 minutes, $20 an hour isn’t a bad part time job!

Foreign currency trading is a 24 hr a day business from Sunday afternoon through Friday afternoon. It allows you to log in when you feel like it or have time. One thing I have learned is to be consistent with my goal I set forth in trading in foreign currency. My intention is to trade and make at least a couple hundred a month in this venture. Like anything, don’t get greedy and think you’re going to hit a home run. Several singles strung together still scores runs and can win the game. By keeping this simple approach, I limit my risk and still have a tangible reward. The more time I spend trading, the more I learn and the more money can potentially be made. However, who wants to sit on top of the charts non-stop. There are so many other things to do! 

I don’t know if anyone will find this useful or will actually venture into the world of currency trading but if you do, be smart. Set your goals, do your homework and GOOD LUCK!