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What is Online Currency Trading?

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  • Written By: Jenny Rae Armstrong
  • Edited By: Lindsay D.
  • Last Modified Date: 12 September 2017
  • Copyright Protected:
    2003-2017
    Conjecture Corporation
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Online currency trading is using internet trading tools to exchange currencies with the hope of making money. For instance, if a trader believes the Japanese yen is going to increase in value and the US dollar is going to hold steady, she would exchange American currency for Japanese currency. If the yen does rise as the trader expected, she would convert her yens back to dollars, getting more American money back than she put into the trade and making a profit off the altered exchange rate.

Currencies are traded on the foreign exchange market, commonly referred to as the Forex. The Forex has no centralized location; the trades are executed by brokerages and the money is exchanged or converted by banks. Since the Forex is a worldwide market, it is accessible twenty-four hours a day, six days a week, making it an attractive option to investors who cannot trade during the nine-to-five stock exchange workday. Many brokerage firms have online trading platforms, making it possible to track the market and trade currencies from home.

Online currency trading is risky. Currencies are volatile, impacted by a wide variety of factors including political events, natural disasters, and the normal fluctuations of national economies. The volatility is what makes it possible for a skilled trader to turn a quick profit, but money can be lost as quickly as it can be gained. Most currency traders also make use of leverage and margin, essentially purchasing currencies on credit. This allows a trader to maximize their profit, but also maximizes their losses if the trade goes against them.

It is important for anyone considering online currency trading to learn as much about the process as possible. There have been innumerable books written on the subject, and there are many online classes or trading seminars aimed at teaching people how to trade currencies successfully. Several online brokerages and internet sites have free demo trading accounts, where prospective traders can test their skills with pretend money. This allows them to see how their trading strategies would have worked out in the real market, whether they would have made or lost money, and to hone their skills through experience.

Working with a high-quality brokerage is absolutely crucial. Even if an individual plans on executing the trades themselves through an online currency trading platform, not all brokerages have equal access to the same number of banks. It is also important to know whether a broker is executing trades on the investor’s behalf or if the trade is going directly through the computer system. While a good broker’s advice can be invaluable, brokers are human beings and are not always available. Brokers tend to be especially busy during market fluctuations, and many smaller brokerages disallow trading during important global events, when it is possible to make or lose the most money. The choice to use a large brokerage with broad access or a smaller brokerage that offers personalized advice should depend on a trader’s familiarity with the market.

Online currency trading is risky, but can be a highly-profitable way to pass the time, build a retirement fund, or build a career. Educating oneself on currency trading strategies, practicing trading in a demo trading account, finding a high-quality, reputable brokerage and taking measured, limited risks is the best way to begin.

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