It is NOT a get-rich-quick thing. AND it can be very risky. Basically what you do is buy on margin a certain amount of foreign currency with another currency. For example, you would buy 100,000 YEN with USD. The margin requirements vary from broker to broker but is no more than maybe $500. Making it very attractive because of the leverage. Also very risky because of the leverage. One small change in the difference means a huge change in the profit/loss.
So now you control 100,000 YEN. If the YEN v.s. USD goes up you make money. If it goes down you lose. You can also trade short - betting your key currency goes down. How do you know when to trade? Well, that's the biggest challenge. There are two main methods to trade:
Traders would be actively studying market conditions and charts. Some traders like to trade from charts exclusively - they are called "technical traders". They would detect patterns in the movement of currencies and when they see a familiar pattern that would indicate a reasonable prospect of making a profit - they would initiate a trade. It takes some experience and understanding of what the charts are telling you. I have done that - with mediocre results. Besides, you have to be totally focused. AND to catch the good trading hours. If you are on the west coast it means early morning. Like 04:00. But man is it fun and intense. As soon as you enter a trade your pulse goes up and - well - it's exiting. Not so fun when your currency drops like a rock - but the thrill is there. It does have a gambling feel - which is the biggest reason people lose. They have the gambling mentality. "I'll win it back". Day trading is, or should be a "non emotional" process.
This is what I now do pretty well exclusively. And it's a whole new can of worms. Most trading platforms these days have the ability to be programmed to execute trades based on some formula. For example, if the moving average moves up by xx steps - buy EUR and so on. Hundreds of these autotraders are out there, and some work - most do not. Problem is - things change. One autotrader system might work this month, but not the next.
However, with a little research and experimenting it is possible to keep your portfolio live and growing.
The best autotraders in my opinion are the ones offered by the trading companies themselves. NOT the fly-by-night operators promising richness. I think if you can make an average of 5-8% of your capital per month you are doing great - and allowing for some losses in the future. Most companies have systems where you can enter in risk tolerance and other variables to pick the best system to autotrade. This is what I did and I think I tried 15-18 systems before I found the right system for my capital and ambitions.
On my account - after some testing and losses - for the past 4 months my little account has slowly grown 14% in total. Which can drop like a stone anytime, but maybe not. To leverage the slow growth (thus proving the system for the time being) I now increase the amount of currencies I trade. So we'll see.
Article Source: https://www.bharatbhasha.com
Article Url: https://www.bharatbhasha.com/finance-and-business.php/366227
Article Added on Monday, April 9, 2012
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