Trading Currency Pairs Online
October 21st, 2009
Trading currency pairs is what the exciting and often volatile world of forex trading is all about. When you trade currencies (forex) you are always exchanging one currency for another. For example, you might be trading (exchanging) US dollars for Japanese Yen. Or perhaps British Pounds for Euros. In each example note that a pair of currencies is traded.
Profits are made in trading currency pairs as they are in trading stocks. You can buy low and sell at a higher price and make a profit or in trading forex you can sell first at a higher price and buy later at a lower price and make a profit.
Trading currency pairs is not really any more risky than trading stocks in today’s volatile markets. The leverage used is the main factor in setting the level of risk on any currency trade. If you are trading currency pairs using ten to one leverage that means with ten thousand dollars in your trading account you could trade up to $100,000 in currencies. Even that degree of financial leverage will add quite a lot to your trading excitement.
With many online forex trading accounts leverage of 100 to one and more is often offered. At 100 to one leverage your $10,000 trading account could trade up to $1,000,000 in currencies. That is great stuff when you have a winning trade but can be disasterous when a trade turns against you. Only a one percent adverse move would wipe you out as one percent of ,000,000 is ,000. Ouch! That would hurt.
Therefore the key points in trading currency pairs is to carefully select the level of leverage you use on any trade and to only trade with true risk capital.
If you can’t sleep at night because you worry about the size of your currency pair position you know you have used too much leverage.
The use of excessive leverage is the number one reason that traders lose when trading currency pairs.
To learn more about trading currency pairs online visit Trading Currency Pairs