If you are looking to make money on the side, then currency exchange is a great idea. It can even be so lucrative that you replace your main occupation with it, or end up going into early retirement. But to get there, you first have to get started. Here’s what you need to know if you are going to succeed.
First off, let’s start with what currency exchange is. It is the practice of purchasing a currency and then selling it on, paying close attention to the exchange rates in order to make a profit. Currency values can swing up and down overnight, and they can make really big shifts over time. You can start by making a Forex account that fits your needs, doing a lot of research, and keeping a close eye on the market. Over time, you will develop a feeling for when something is ready to go up and when it is ready to go down.
Know Your Politics
One unexpected side effect of going into currency trading is that you will need to brush up on your politics. The current events of the world have a huge impact on how much currency is worth. If a government is seen as making a poor decision, their currency is likely to dip. If a big trade deal is made in one country or they have a very successful moment on the world’s stage, the currency is likely to go up. You will also want to stay abreast of events that might impact a country’s financial status, such as hosting the Olympics, a royal wedding, or a declaration of war.
Practice is Possible
If you don’t want to risk your own capital right away, there are free Forex accounts and apps where you can pretend to trade as if you were using real money. While there are no benefits to be gained from getting it right, there is also no risk if you get it wrong. When you are done with practicing, you can also start with a mini account. This trades in stakes of 10,000 at a time rather than 100,000, so there is less risk involved – though your gains will also be more pedestrian.
Choose Your Orders
There are two types of orders you can place while trading currency. The first one is a market order. This allows you to purchase currency at its going market rate. On the other hand, you could also try a limit order. This is where you stipulate your entry price, so you won’t buy until the currency reaches the limit that you have specified. As you practice, you will get to see which of the two order types suits you the most. You may even employ a mix of the two tactics if you find that works better for you.
Learn the Lingo
These are a few of the terms you may come across, and what they mean:
- Sell rate: the rate at which traders will sell their currency.
- Buy rate: the rate at which traders will buy currency. This is often different to the sell rate: think of a bank which trades money to travellers. When you turn your money into a new currency, you often get it at a different rate to the one you get when you sell it back to them after your holiday.
- Spot rate: the rate at which banks trade between one another. It often refers to a large amount of money.
- Spread: the difference between the buy rate and the sell rate.
It’s a lot to learn, but the work will pay off. With practice and luck, you can get rich on foreign exchange very easily.
Alana Downer is an experienced blogger whose main interest lie in finances and new technologies. Currently writing for Learn to Trade, Alana might often be found online, sharing her insights into technology trends which shape the way both businesses and individuals function.