The foreign-exchange (forex) market is open from Sunday to Friday, 24 hours a day, for investors who want to take part in the world's largest and most liquid financial market. Currencies are traded in the form of pairs: U.S. Dollar/Yen, Euro/Dollar, British Pound/Dollar and so on. To trade currencies, it is necessary to have some knowledge of how the market works and how the individual currency pairs move. A basic familiarity with price charts is also essential.
- If you're new at forex trading, begin with a mini-account. Using mini lots, the "pips" or price points through which the currency pairs move are worth approximately $1 each, rather than $10 with standard lots. Using a mini-account prevents sizable losses that can soon wipe out your trading capital.
- While you're getting a feel for the market, trade only the major currency pairs: Dollar/Yen, British Pound/Dollar, Dollar/Swiss Franc and Euro/Dollar. These are the most liquid, heavily traded pairs and as a result are not as volatile as more thinly traded currencies. You will notice, after a time, that each major pair has certain characteristics, which you will eventually be able to predict and use to your advantage.
- Trade at a certain time of day or night and always trade a currency when the home market for a currency is active. When the London market is open, for example, the British Pound is active; this occurs every day between about midnight and 8 a.m. in the eastern United States. The Japanese Yen is active beginning at about 8 p.m. eastern time, when the Tokyo financial markets open for business.
- When looking at a chart of prices in a currency pair, it's pretty easy to spot the underlying trend. The dollar and every other currency is generally rising or falling, as shown by the direction on a price chart that moves in 60-minute or daily intervals. Always trade in the direction of this trend; look to buy the pair when the trend is up, look to sell when the trend is down. Stay out when there is no definite direction.
- While following that trend, watch the chart for points of resistance and support. Support is the price at which the currency pair generally rebounds and turns back up. Resistance is the price at which the pair generally falls away and turns down. Support and resistance levels indicate a general consensus, revealing where the major traders are buying or selling the pair. Follow their lead; if the trend is up, buy when the pair rebounds from a support level; if the trend is down, sell when it
