The foreign currency markets, or forex, on which major national currencies are traded, is a massive international free market that can make or break a forex trader on a daily basis. Because of the extreme volatility, trading volume, and liquidity of this free market, forex investments must be made only after a thorough understanding of the nature of the beast is understood.
There are countless stories of amateur traders stumbling upon overlooked or even penny stocks, usually of small companies, and enjoying profits of many times their initial investments. Many day traders make their living following the best stock tips and using technical analysis to make their living trading stocks online. However, there is no room for beginner’s luck on the forex markets – with exchange rates plummeting or skyrocketing in a matter of seconds, plus the fact that you will be trading with some of the best minds all over the world, means that it’s vital to spend at least a few weeks preparing to trade on forex and even conducting trial forex runs, where you trade with imaginary money using the same tools that real forex investors use, and see if you can come out ahead.
To maximize your chances for success, pick two of the major world currencies to trade against and between. For most people, the “major” currencies will be the British pound, European euro, American dollar, Japanese yen, the Canadian dollar, the Australian dollar, and the Hong Kong dollar. It might be easiest to pick your home country’s currency (if it is one of the major currencies), as one of the pairs, but it’s not necessary.
Next, you need access to a good current events, 24 hour news source. Every forex trader will have their own “secret” sources, but a channel like Bloomberg News is a good place to start. You will need to react quickly to current events that you think will impact either of both of your currencies, and access to a speedy news source is the only way to do this – the forex market is the most liquid in the world, which means it reacts to changes and adjusts prices at lightning speed, but if you move fast enough, you can get ahead of the momentum and gain a slight advantage.
There is a potential for massive losses when beginning forex trading, but through due diligence, you should be able to keep your losses to a minimum and increase your profits exponentially.