Forex Trading And The Benefits Your Portfolio Can Enjoy

Forex trading can be done in various forms and for various reasons that deciding where to start can be a big task

. After all, should you open up an account at a brokerage that specializes in FX trading , or do you want an account with a brokerage that lets you trade futures, stocks, options, and more ? Not only is this an overwhelming decision , you then need to decide whether to use your FX trading as a hedging or speculative tool, conservative or aggressive, short or long term, and more . Many things must be considered before you start out.

Although the above questions alone can start a big response , in this article we're going to focus on the basics . The simplest way for you to begin feeling comfortable with the FX trading world is probably to just take the plunge and open up an account at a brokerage that specializes in this field . Which broker should you go with? That is a whole other topic for a different time . Before depositing money, just be sure to do some due diligence!

Once your Forex Trading is up and operational and you're off and running , it's time to find out more about what you are participating in. With this example , we suggest that since you started with an account with a specialized broker , you'll begin by trading cash or spot contracts. Without getting too complicated , this simply means that you're trading current price in the global market right where it is that second. If 1.3200 is what you see the Eur/Usd pair is trading on the screen then at this rate you can sell Euros against US Dollars or at this rate you can purchase US Dollars and sell Euros . Of course there will be a small spread built into the price you see and this is the cost of entry when you take the trade . Look for a broker going with a spread of 2-3 pips and nothing more .

Because speculating can at times be pretty tough, even for the pros like me , let's say that you are starting out with the goal of hedging your stock portfolio in the United States . Because your stock portfolio is in U.S. dollars you could make money when the stocks go up in terms of the US Dollar but your gains can be cancelled if the US Dollar weakens. You want to hedge this part of the portfolio and you have decided in your brokerage account to purchase Euros against US Dollars . This way as against the Euro the US Dollar weakens and your portfolio starts to suffer because of this weakening, the downside risk is hedged because of the gains you get by buying the Euros .

The above is probably one of the easiest and most basic ways of adding a forex trading component on to your portfolio. In future articles we'll talk about more advanced methods of speculation , but this is a great place to start .

by: David F. Dacosta

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