Trade in Forex
Forex tradingorcurrency tradingis typically done through a broker or market maker. The broker helps you(the buyer) to choose the right currency pair and place your order with him.
For example, if you had purchased 1,000 Euros in January 2005, it would cost you around 1,200 in US Dollars. At the end of the year 1,000 Euros were worth 1,300 US Dollars. If you had chosen to end the tradeatthat point in time you would have a $100 gain. The broker then fills your (the buyer's) position in the interbank market used for Forex trading in India and elsewhere, and credits or debits your account with the gain. A loss would occur in the reverse scenario.
(i) Understand the basics of forex trading and the terminologies used.
(ii) You need to open a Forex Brokerage Account for foreign currency trading, and do so by understanding the services your chosen broker provides because they differ between different companies involved in Forex trading in India.
(iii) Decide on your strategy or mix to trade in forex. The two main currency trading strategiesin the Forex currency market is the simple buying or selling of currency pairs, and the second is to purchase derivatives that track the movements of a specific currency pair in the currency trade.Currency futures tradingenables the investor to take a position on forex exchange for a time in the future, based on which an action can be predetermined.
(iv) Establish some ground rules. You can decide here on your risk appetite, which currencies you want to trade in, what margins you will go after what thresholds that will determine what actions you will take, etc. For example, you can decide to sell when your position changes beyond a ten percent positive or negative.
Types of orderThere are three types of online currency trading orders for a trader looking to open a new position in the Forex market.
Market Order: This is when you tell your broker to obtain the currency at whatever exchange rate it is currently trading at in the market.
Limit Order: your trader specifies a certain entry price and a transaction is carried out at that price.
Stop Order: When research or speculation points to an increase in price, a stop order can ask the broker to purchase at a rate higher than current market rate. This is in anticipation of a high profit. This can also be an order to see at a price lesser than market rate to reduce further losses.
The above points should set you off with the basics of how to trade in currency.