To begin with one must understand what trading foreign exchange really means and what is required in order to make it a profitable business. Anyone above the age of eighteen and located at a place where there is a computer and an internet connection can trade foreign exchange. It does not take a lot of money to begin foreign exchange trading. In fact, some brokers offer a live trading account with as little as 30 US dollars. The bare minimum required to make a workable income every month is actually three thousand dollars.
How to Understand Business of Trading Foreign Exchange
It is important to understand that trading foreign exchange is not meant for everyone. This is a very risky business but it traded with discipline and a strategy that included loss management or risk management whatever you want to call it tit could take on the dimensions of a very lucrative business that can be conducted from anywhere.
Trading foreign exchange means buying one countries currency in exchange of another countries currency. A trader buys another countries currency if he or she believes that the currency is going to increase compared to the value of the currency being used to buy it.
Currencies increase (or decrease) in what is called ‘PIPs’ ‘ Percentage in Points. In the case of the EURO/USD pair one PIP is equal to 1/10000th of a dollar. Currencies are traded in pairs by buying pr selling lots of 10000 ‘ the minimum standard size of a lot.
When a trader buys a standard lot of US dollars he just needs to have as little as 100 US dollars to invest. In some cases brokers may require just 20 USD to buy a standard lot of 10000 dollars or Euros. Now when this one lot increases in value by one PIP that is one tenth of a dollar, the profit of the trader is equal to one US dollar. This way a forex trader can make as little as 10 to 20 US dollars profit with an investment of just 100 dollars.
A lot needs to be learnt about spreads, margins, leverages and risks before delving into what can be a very profitable business on the Internet.