How FOREX Trading works.
When you're playing the FOREX market there are two choices: buy or sell. Since there are only about 30 or so currency pairs(example: British Pounds vs U.S. Dollars or Euros vs Swiss Francs) the market isn't very wide. A normal trade goes something like this: Say that 1 euro is worth $1.30 U.S. . From this price you can either buy euros, hoping it will go up higher, or sell euros, hoping it will go lower vs the dollar.
When you make your trade you buy or sell in 'lots'. A lot is a larger block of money that your brokerage is offering a piece of. The overall size of a lot is not relevant to trading FOREX accounts because you determine what price to put on a currency price move.
Since currency prices move very slight amounts the pennies are sub divided into 'pips'. These are hundredths of a penny in the case of the USD-EUR pair. So using our example earlier; the Euro is worth 1.3000 and it goes up to 1.3025, that's a move of 25 pips.
When you place your trade a pip can be worth 1 penny, 1 dollar or even more. That 25 pips could be worth 25 cents, 25 dollars or more. When you close your order the money is yours. Simple.
Setting up a FOREX account.
The are dozens of online FOREX brokerages. These brokers make trading FOREX simple fast and easy. I am a fan of one called IBFX but most of the brokerages are the same with a few slight differences like deposit methods and minimum balance. I would look at a few before deciding to open a live money account.
Once you've decided on a broker you'll download an account interface program, sort of like a control panel. These programs allow you to monitor all aspects of the currency markets from real time charting, to news headlines, to your trade execution. FOREX interfaces can monitor your trades and even automatically place them for you. Without these great programs trading online wouldn't be as fun.
When trying out any FOREX online broker always open a demo account and get a full understanding of their software and client relations. I prefer my broker be located in the United States, that way I retain at least a slight amount of recourse-ability.
Develop a system of Expert Advisers.
Expert Advisers sound like people who tell you how to trade, but in reality they are automated trading programs that execute trade for you. Expert Advisers are computer algorithms that are programmed to read a certain market condition and execute a trade in response. They can be extremely profitable but you must understand that Expert Advisers are like golf clubs: They work as long as they are used under the correct FOREX market conditions.
Expert Advisers are easy to find. Many are published for free and available in your FOREX Interface program. There are also independent programmers who are perfecting entire systems of FOREX trading centered around these Expert Advisers, they charge hundred to thousands of dollars for these simple programs. The idea behind the big price is the promise of big returns. Surprisingly some of them work extraordinarily well.
I am a firm believer that it is very easy to make money on the FOREX. The hard part seems to be keeping it once you've made it. Since FOREX accounts are based on how much money you put into them, there is always a chance that a bad decision can wipe it all out quickly. Very turbulent market moves can happen with major banking news, like an announcement of a government bailout. This can send a currency pair rocketing hundreds of pips. To avoid losing all you money you need to use money management.
Money management is the practice of not leaving yourself exposed to wipe outs on the FOREX. The easiest form of money management is to take your profits and move them into a separate FOREX account. That way if account A is wiped out account B still has your profits. Sort of like blackjack except in FOREX the odds that you'll win are much higher so the same bet over and over is actually a smart idea.
Try a demo account for the FOREX. If you make money with the demo account, you will make money with a live account. I once put $250 into a FOREX account and had $1600 within a week. Solid money management and modest daily goals will make you a FOREX Millionaire in no time.