Before starting with the method to trade, it is essential to unfold the chronicle of Forex trading. The financial markets have always been an interesting topic and provide various opportunities to make money. As businesses expand, they use the financial markets so that they can access more money to achieve their future goals. Today the multinational businesses sell and buy their goods over the entire globe. Different countries have different currencies and the fluctuating exchange rates allow the businesses to convert the money received in foreign currency into the domestic currency.
These exchange rates keep on moving throughout the day which makes the traders and investors to earn a living by selling and buying various pairs. The foreign exchange market is the biggest and most liquid market in the world, with nearly three trillion dollars changing hands every day. Some years ago, it was traded by only big banks but now retail investors can also trade with the help of retail foreign exchange brokers. If you are interested in currency trading, it is very easy to start.
Forex trading requires only a small initial deposit to start trading because Forex brokers provide you leverage to buy the currency. Sometimes this leverage can be as high as 400:1. This means that you can buy $40,000 USD worth of currency by funding your Forex
trading account only with $100. You can make huge profit with such a small deposit. You need big capital to make sufficient profit because most of the currencies move within pennies.
Remember, this leverage can cause huge loss to you if the currency pair bought by you starts to lose value. In other words, leverage is a double edged sword because it will give you greater returns if the trade goes in your favor and heavy losses if the trade goes against you. Typically you will get more leverage if you deposit more money in your Forex trading account. You are suggested not to use all the buying power given to you. You should start with smaller lots which will give you an idea of the market movement without putting all your capital at risk. Risk management is a very important skill that should be developed when trading in currency market.
Make sure that your Forex trading broker allows you to place stop loss orders because it is the best way to manage your risk. After placing a buy order on a particular currency, you should have a target price where you will sell, if the currency starts losing its value. The price movement is unpredictable therefore traders should have an exit price which can either be a percent drop of 5%-10% or a dollar amount like a loss of $10. Taking small losses instead of big ones and being disciplined is a key to become a consistent profitable trader. In the online trading market, you will make profitable trades as well as the trades where you will lose money. Increase your winner rides and cut losses before getting them out of control if you really want to extract money from foreign exchange market.
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