The currency exchange or Forex market is the biggest securities market on Earth. Almost all trading takes place online and continues 24 hours a day each business day. If you have a few extra dollars and Internet access, you can get in on currency trading. However, before you start, it’s crucial you understand that Forex trading is risky. Forex transactions are made with very high margins. It is routine for a trader to put up less than $1,000 to buy a $100,000 lot of currency. Even the smallest chances in currency exchange rates can produce large profits or wipe out the money you put up.
Select a reputable Forex dealer. The currency exchange market is mostly unregulated. The U.S. Securities and Exchange Commission suggests choosing a Forex dealer who is a member in good standing of the National Futures Association. The NFA acts as an industry self-regulating body.
Open a practice account. Many Forex dealers provide free virtual accounts. You gain experience using “trading platforms,” which are software packages used to trade currency. You make transitions using real-time data, just not real money.
Study the structure of the currency market. Currencies always trade in pairs. You buy one currency in conjunction with another in hopes the exchange rate moves in your favor. If it does, you make a profit. Use your practice account to experiment with various trading strategies and to become familiar with different securities types such as Forex futures and options. Learn to interpret short-term technical indicators (often called Forex signals) and the economic forces that drive currency exchange rates such as inflation, trade balances and monetary policy.
Get your feet wet in the currency market with a mini Forex account. Forex dealers offer these accounts to novice investors. Mini accounts require only small initial deposits–sometimes under $100. You limit your risk by trading small amounts of currency.
Open a regular Forex account once you acquire enough experience. Typically you will need an initial deposit of $2,000 (as of 2010). You’ll be trading standard lots of $100,000 worth of currency, putting up only small amounts of cash for each lot you trade.