If you are looking for a way to earn extra income, forex trading may be the right choice for you. This highly liquid trading arena allows you to speculate on a nearly 24/6 currency market, indices, shares, commodities and more. Online trading should be considered risky, but for sophisticated traders it can provide the opportunity to profit from a very active global market.
Some things to consider before trading Forex and other CFDs:
Online traders use leverage to control a large investment with a relatively small amount of money. This allows for strong potential returns, but you should be aware that it can also result in significant losses.
- 24/6 Market
Be responsive to market conditions and economic events knowing that you can trade almost 24 hours per day, 6 days per week – from market open on Sunday to market close on Friday.
Forex is a very active market with an extraordinary amount of trading, especially in the biggest currencies. Trading some of the more obscure pairs may present liquidity concerns.
- Trading Costs
Forex trading doesn’t usually require payment of an exchange or license fee, but you will be required to deposit margin for the position. You have the option of trading either non-commission FX pairs or commission based FX pairs.
- Trading Strategy
For any trader, developing and sticking to a strategy that works for them is crucial. Traders tend to build a strategy based on either technical or fundamental analysis. Technical analysis is focused on statistics generated by market activity, such as past prices, volume, and many other variables. Charting and other similar technologies are used. Fundamental analysis focuses on measuring an investment’s value based on economic, financial, and Federal Reserve data. Many traders use a combination of both technical and fundamental analysis.
- Build Your Skills
Becoming a skilled and profitable forex trader is challenging, and takes time and experience. Use a demo account. Never risk real money until you are consistently profitable over a meaningful period of time. With a demo account you’ll have access to many features and capabilities that will help build your knowledge.
- Manage Your Risk
It is very easy to become over-leveraged in your forex trading account. You need to implement sound money management principles in every trade that you make. You should make sure that you are trading with a lot size that is not too big for your account balance. You also need to implement the use of a stop loss on every single order that you place.