How To Do Forex Trading Online

How To Do Forex Trading

We've covered the "whys" of doing Forex Trading online in a prior article. Now we're going to cover the hows – in particular, what to look for and the absolute basics of what's going on.

First of all – some definitions. Forex currency exchanges rate the price of currency in "pips", which are 1/10,000 of a unit of the currency – for decimal currencies, like the Euro or US Dollar, a pip is 1/100th of a cent. If the Euro is trading at 1.3400 and goes to 1.3401, its price has increased by 1 pip.

Most of the Forex Trading is done by the big players in the market – roughly 3/4 is handled by 10 trading houses, and the entire forex market is valued at 2.2 trillion dollars…which is why worrying about price fluctuations of a 100th of a cent makes sense.

Most small investors doing forex trading need to take forex trading with a grain of salt. It's not gambling, so much as it's having a strategy. Though doing forex trading without a strategy doesn't qualify as gambling either, it qualifies as throwing money away. First things first, work on educating yourself about the forex markets. While our articles can help you get the terminology straight, you'll want to look at resources that cover the market in detail, and explain what factors influence forex markets, from commodity prices to weather, even celebrity gossip. (As money is the lubricant that drives the world's economy, and the economy is increasingly global, anything that causes a shift in pricing can cause a shift of a pip or two in the forex markets).

Day traders, leveraging the purchasing power of centralized banks, can make reasonable profits on moves of 1-3 pips. For small investors, you're looking for moves in the realm of 40 to 500 pips for setting up your strategy. There are strategies that can do this in the short term – one to three days – and they can work when the trend line on a currency is advancing (the price is rising) or retreating (the price is falling). Other strategies, that are a lot less labor intensive, and somewhat less risky, are longer term strategies following 2 to 3 week trends. They're less volatile, but they allow traders to actually go to the bathroom or bathe from time to time.

Regardless of which strategy you follow, you'll also want appropriate charting and trend plotting tools, and you'll want to have automated stop loss orders put into place, and planned exit strategies out of each bidding position. Fortunately, these can also be learned.

Finally, understand that you are playing a game of odds. There are strategies that are riskier, with higher rewards, and strategies that are safer, but with minimal chances of blowing up in your face. Make sure, when you're looking into forex trading training, that you get a good panoply of strategies out there, and training on what news items and market indicators mean and how they'll impact your strategies.