Why trade currencies?
Well, why not? It's full of benefits and advantages (and quite a few risks as well!). Here's why so many people decide and choose the forex market:
Round-the-clock market
The forex market knows no sleep from late Sunday until Friday night. That's just fabulous for folks who have day jobs and only want to trade in their spare time (although frankly said, we know guys who take trades at their workplace).
Minimum possibility of price manipulation
The forex market is so deep and there are so many participants in it that not a single institution (be it even a Central Bank or the Federal Reserve) can control the rate of any currency for a prolonged period of time.
Leverage effect
In forex trading, a small deposit (called margin) can control a large position. The so-called leverage gives the trader the possibility to turn a profit far larger than what he could make if he were not to use leverage. Examples teach best: most brokers offer 1% margin accounts (i.e. 1:100 leverage), so if you deposit $2,000, you can buy or sell currencies at a value of $2,000 x 100 - $200,000. But please do keep in mind that leverage is a double-edged sword. Without proper risk management such high leverage can bring about big losses. When you trade on 1% margin, if the currency you bought goes up 2% against another currency, you will make a profit of 200%. However, if your analysis regarding the direction of the market was wrong, you will lose all of your deposit, and thus become one of an endless number of newbie traders who have wiped out one, two or more accounts. So, open positions with just a small part of the money you have available in your account.
High liquidity
As the forex market is enormous, it is exceptionally liquid. What does 'liquid' mean? It means that you can always sell what you have bought. Under normal market conditions there's always a counterparty who will buy/sell the currency you need. For example, you will never have to worry about selling the 100,000 euro you bought the other day. You can even put in a limit order in the trading platform which will automatically sell your 100,000 euro at a price level you had predefined. By setting a stop loss order you can control your risk in case things go sour. All this means that once you take a trade, you set a stop loss order and a take profit order, you don't necessarily have to be stuck to the monitor all the time.
Free practice accounts
Most brokerages offer you to register for free a demo account and practice at no risk. In fact, we would recommend you to practice for at least a few months before opening a small real account.
No comission trading
Well, not all forex brokers offer no-commission trading, but the great majority do. Those brokers who offset their clients' positions receive compensation through something called 'spread'. The spread is the difference between the buy rate and the sell rate. The buy rate is also called the bid rate, and the sell rate is the ask rate. Of course, most of the time many brokerages operate as so-called bucket shops, especially when it comes to small client accounts (micro or mini accounts with say $500 or $3,000 in them). What this means for small accounts is that basically the brokerage is the one taking the opposite of your trade and not another retail trader or institution on the interbank market. Only if on balance they appear to be too long or too short (too overbought/oversold), will they offset part of their overall position. All of this, of course, shouldn't bother you too much as long as your broker is honest and pays up when you request a withdrawal of (some of) your money. Beware of fraudulent (usually unregulated) brokers! Check out their background in internet forums before depositing your hard-earned money with them.
What do I need to start trading?
Most forex brokers require a minimum deposit of a few hundred dollars or the equivalent in other currencies. Apart from this capital, you would need a speedy internet connection and a lot of self-discipline.
