Currency Trading Methods

Once a reasonable amount of experience and knowledge has been gained in the foreign exchange market it can be very profitable to combine both methods. Here are the main characteristics of each:

Leverage

Novices in Forex trading will typically find an FX broker, open a free demo account, read a manual or take a tutorial, and start practicing speculating skills based on technical indicators.

Through the Forex broker traders are able to use leverage so if they eventually decide to open a mini account, a 200:1 leverage means that with $1 they can participate in the market with $200. If in time they graduate to a regular account, 1 trading lot of $10 can be leveraged by the broker so $2,000 can be traded for another currency.

Many beginners to FX trading concentrate on getting small profits, getting in and out of the trade quickly, usually taking no longer than a few hours at the most. Day trading necessitates learning how to read candle charts, recognizing patterns, and anticipating where price is likely to go.

As many new currency traders find when they have been currency trading for a while, it is possible to have a succession of losing trades, and without proper equity management, their account can be blown necessitating another cash injection to allow them to trade again.

Alternating between a demo account and a mini account can reduce the cost so the new currency trader can regain confidence in the demo before going back to live trading again. Eventually, the hope is that the trader will develop a consistent trading pattern so more trades are won than lost so their equity gradually increases.

Taking Ownership

This method of currency trading still requires a learning curve as one has to anticipate the currency market moves and recognize chart patterns. Unlike using leverage however, the risk of financial loss is smaller. It simply means you create a portfolio with whatever funds you wish to commit to currency trading and open bank accounts in each of the currencies you wish to trade.

For example, you may wish to open bank accounts for any of the following:

US Dollar
British Pound
European Euro
Japanese Yen
Swiss Franc

Of course, more substantial sums of money are needed to make this method of currency trading worthwhile after taking into account bank transfer charges.

However, if you have xx,000 dollars or euros or any of the big five currencies to commit to currency trading this method is certainly worth considering.

After learning technical indicators, about support and resistance levels and Fibonacci calculations, you will soon recognize key patterns on the higher time frame charts. Using daily and weekly charts will bring to your attention currency pairs that are in an up or down trend or pairs that appear to be topping out or reaching a strategic high or low.

If for example the GBP reaches a high against the USD that is the highest it has been for many years, there is a reasonable possibility that it will not stay at that level. Taking a portion of your equity and buying dollars would make good sense. Within a few days or weeks depending on your profit targets, the pound is like to come down at which time you sell dollars and buy pounds.

For example, with GBP10,000 you purchase USD as the GBP touches 2.000 against the USD. You now own USD20,000. Within a few days the pound GBP back to 1.9800 at which time you sell USD and buy GBP giving you GBP10,101 less bank transfer fees.

This is just a quick example of how the ownership method of currency trading works. Of course, the currency may not go in the direction you anticipate in which case your equity will be reduced. You will then need to hold that currency until such time it increases in value. Alternatively, you may see another opportunity involving a different currency cross and be prepared to take a loss in order to use that capital in a new trade.

Automated Forex Trading. Currency Trading Methods. Currency Trading Rules. Forex Trading Systems. Avoiding Scam in Currency Trading. Currency Trading Mistakes. Reasons to Start Currency Trading. Using Demo Trading Accounts. Using Forex Indicators. Choosing Forex Broker. Types of Trading Software