Making Money Online: Trading on Forex

Trading in foreign exchange can be an exiting way of making money online. Forex trading involves buying and selling foreign currency. The Forex market is open 24 hours a day, six days a week and offers a variety of ways to match your trading style. Swing trading and scalping are the most profitable Forex trading styles.

Regardless of which trading style you use, there is money to be made if you are financially savvy. Along with great profit, however, comes large risk, so be aware that currency trading is not for the faint of heart. To see if you have the right stuff, Forex offers a free practice account.

To get started, you will need a Forex account, a broker (optional) and you will need to fund your account. Now you're ready to start trading.

Through scalping, you can make money by opening and closing trades at the fastest possible speed. Your profits are gained from the slight movements in price and your ability to quickly get in and out, seizing the opportunity (and profit) before the market moves back. While this trading style comes with a lot of risks, you make incredible amounts of money by challenging the system.

Swing trading on the other hand is slower than scalping. Through swing trading, you make money from a swing in price that the currency pairs experience. Swing trading can be open for several days at a time. You profit from timing the correct entry point and figuring out whether one currency in the pair will appreciate or depreciate against the other.

Before you start trading, be sure to think seriously about these tips:

1.Make a plan

You need a trading plan to stay in control and avoid the emotional stress that comes with speculative situations. Your emotions can deceive you, leading you to the negative side. Greed can entice you to forfeit a gain, while fear can cost you profits. This is why you need to predetermine and strictly follow an organized plan of operation.

2.Trade within your means

You will never afford a win if you cannot risk a loss. While no one likes to lose money, it is occurs with almost any kind of investment. Only trade with money you can afford to lose. Before you start trading in Forex, set aside part of your income for investment and use those funds for trading.

3.Trade where the action is

Consider trading in popular currency pairs. If you are a beginner, start with the big five: USD/EUR, USD/GBP, USD/JPY, USD/CHF and EUR/JPY. Avoid working with too many pairs as this confuses you with all sorts of complex currency studies.

4.Avoid emotional trading

Stick to your financial plan. Never attempt to hold your weakened position hoping that the market will somehow turn out in your favor. You might end up losing all your money doing this. Move on, work with your trading plan and acknowledge your mistakes if things fail to go your way.

5.Develop a passion for the trends

Learn to appreciate the trends. Even though currency values fluctuate, they normally tend to go in a steady direction. Make the long term trend your main reference point if you are not sure of certain moves. Ultimately, trading with trends will improve your odds in the Forex market.

Forex trading has become popular with investors who because of its high liquidity, high leverage and near round-the-clock availability. However, understand that Forex trading involves a lot of risk--the market is very volatile compared to other conventional investments.

Last update: Nov 17, 2010