FOREX for Beginners

Investing your money has never been simple, and with the volatility of the economy since 2008 it has become even more difficult to find legitimate ways to invest and reap a return. FOREX, or foreign exchange, is the buying and selling of money on the world’s currency markets, and is an investment trading option available to anyone who has some cash to spare and an Internet connection. You can begin investing in FOREX with a small amount of money and little knowledge of the marketplace. Apart from monetary fluctuations caused by economic factors, trading in the major currencies is a relatively low-risk form of investment.

How it Works

When you buy the currency of one country using the currency of another, you are exchanging the two forms of money. The value of every currency is constantly fluctuating, depending on news from and events in the country to which it belongs, the levels of activity on stock markets, and the amount of currency being traded. The major currencies involved in more than 85 percent of all daily currency transactions include the U.S., Canadian and Australian dollars, the British pound, the Euro, Japanese Yen and the Swiss Franc.

Investing in FOREX

It is possible to begin investing in FOREX for as little as $1. You can open a micro account with a retail FOREX broker for this amount, and a mini account for $400. You will need at least USD $100 available, however, to begin trading effectively. Add funds to your account instantly using your credit card when you are ready to begin buying currencies. The broker provides the platform for buying and selling, which is accessible via the Internet. Most brokers offer free demo accounts for investors to become familiar with the trading platform before committing themselves financially.

Trading FOREX

Currencies are always traded in pairs, which are written using three-letter currency symbols. The two currencies together create an exchange of foreign currency; for example, USD / EUR is the symbol for the exchange of U.S. dollars with Euros. Cross-currency pairs don’t contain U.S. dollars, such as EUR/JPY. Once you begin investing in FOREX, to execute your first currency trade you will need to analyze the market to determine which currencies are rising and which are dropping. Choose a currency you think is rising, and place an order either at the existing rate, or to buy when the rate drops to a specific rate. Once your order goes through, you own the currency you bought and can trade it again for a different currency, using the same method.

Risk Management

Investing in FOREX includes several financial risks. Beginners must identify the level of risk they are prepared to take before beginning trading, and then manage their risks as they proceed. Common risk management strategies include limiting orders, which means that you stipulate the amount of a currency that you are prepared to hold, and only purchase it at a specific price. This prevents you from buying currency that is devalued below your specified level, so you have a lower risk of losing money on it. Risk management also balances the risk of devaluation with the amount of money you have available to use to buy currency, which is called margin or leverage.

Start your portfolio by investing in FOREX at a basic level, and increase your understanding and knowledge before you risk large sums of money. As with every form of investment, keep a balanced portfolio and hedge your options to ensure that you avoid taking unnecessary risks.