Foreign Exchange Market or Forex is currency trading market and is similar to stock market. The currency pairs are on a trade like shares, only the difference is Forex is much simpler and a lot more active. It is said that because it’s more active, it is a lot more risky. However, in my opinion it doesn’t matter how fast market moves, the risk involved is highly subject to the trader himself. When further comparing stock market and Forex, we must note that sometimes the shares can plummet overnight like none currency pair would ever.
First thing to do when learning how to trade currency, is to learn to read charts. The candlestick charts are widely used. Such a chart consists of vertical bars crossed with vertical line through center (see picture on the left) – the form resembles that of a candlestick, thus the name. Each candlestick describes the market at a given period of time (i.e. 1 minute, 10 minutes, 1 hour, 1 day, etc.). The vertical line connects the extreme price points in the period – the high and low prices. The bars show the opening and closing prices. If the closing price is higher than the opening, the candlestick is colored green, otherwise – red. The patterns that these candlesticks form are one of the main tools used by professional traders.
I’m not going to go into detail about the different ways to use these charts, it’s a subject of an entire book. I will cover one simple method that will give you a kick-start in learning how to trade currency, though. You can easily use candlestick charts to spot trends. First of all, you have to pick the correct timeframe. The trends can highly differ in different periods of time, so if you don’t want to open and close positions every few minutes (which is called scalping), you should choose a timeframe of at least an hour (meaning a single candlestick represents one hour). Then spotting a trend is pretty easy – look at the dominant colors and tipping points. If the chart went all green for a certain period of time, then turned red and continues going red, you have a trend and you can open a short position (meaning you have to sell).
The Forex trading is done through a broker by opening an online account with them. They are usually free to open and have no minimum deposit, and have demo accounts to play for free money. Which is what I would recommend you to do when you start learning how to trade currency, and get the hang of it with play money first. Some of the popular brokers are FXCM, FXDD, InterbankFX, Alpari. You can find more information about them on their websites.
Now that you know the very basics of how to trade currency, here’s some “underground” methods of trading. To learn Forex really well, it takes years and a lot of investments. However, there is a shortcut and it is called automated trading software. The software is developed by professional traders to automate their tasks, and some of that is available to public. You can rake in some profits of trading Forex without knowing much at all, or you can run this software on demo account and learn how to trade currency as if a professional trader was showing you how to do it.