Part-time forex trading can be a successful way to supplement your income, no matter what your situation or schedule. Even if you work full time or hold a part-time job, you can find the time to trade in this potentially profitable market. Read on for some tips to help get you there.
TUTORIAL: Forex Currencies
The Keys to Success in Forex
The key to successful forex trading is to specialize in the currency pairs that trade when you're available for trading, and to use strategies that don't require constant portfolio monitoring. An automated trading platform may be the best way to accomplish this, especially for new traders or those with limited experience. (Check out some common mistakes that often trip up forex traders in Top Reasons Forex Traders Fail.)
1. Find the Right Pairs to Trade
Although forex trading occurs 24 hours a day throughout the week, it's best to trade during peak volume hours to guarantee liquidity. Liquidity is a trader's ability to sell a position, which is much easier to do when the market is most active. Assuming that you work a nine-to-five job, you'll be available for trading either early or late in the day. Depending on the currency pairs you're trading, high volume may occur at either end of the day. Either time may be the right time to trade.
For small traders with mini accounts and beginners who lack experience, experts advise trading U.S. currency against various foreign currencies. Even more experienced traders prefer trading U.S. currency against other foreign currencies, although many knowledgeable forex traders will also trade foreign currency pairs.
The great majority of dollar volume traded on forex markets occurs in the currency pairs below. Because of good liquidity in these pairs, it may be wise for part-time traders to restrict trading to these briskly traded currencies. (For more information on global currencies, read Top 8 Most Tradable Currencies.)
For part-time traders with more experience, and with time to research conditions and circumstances that may impact currency prices, the following pairs also offer high liquidity.
Because the part-time trader has a limited time during which to trade, experts advise trading only the USD/EUR pair. This pair is most frequently traded, and there's an abundant amount of readily available information on these currencies in print, broadcast and internet media.
Conversely, experts discourage part-timers from trading two foreign pairs that may require more sophisticated knowledge, and for which information may not be readily available. (To learn more about trading the U.S. dollar, check out Play Foreign Currencies Against The U.S. Dollar - And Win.)
2. Set Up an Automated Trading System
Part time traders may opt to trade on their own, or choose an automated trading program to make trades for them. (For more on automated trading systems, see Forex Automation Software For Hands-Free Trading.)
There's a variety of automated trading programs with a full spectrum of functions available on the market. Some of them may be able to monitor currency prices in real time, place market orders (impose limit, market-if-touched, or stop orders), recognize profitable spreads and automatically order the trade. Please note, however, that even if a trade is ordered, there's no guarantee that the order will be filled on the trading floor at the price expected, especially in a fast-moving, volatile market.
A so-called "set and forget" program may be the best way for a beginning part-time trader to start learning about forex trading, and allow the software to make the automated decisions. Several automated programs offer a simple "plug and play" capability - an easy way for part-time beginners to start trading. This in one of the major benefits of automated trading - disciplined, unemotional trades. More-experienced part timers may prefer a more hands-on trading approach, and choose automated trading software with more programmable options. (To learn more, see Forex Automation Software For Hands-Free Trading.)
3. Apply Dispassion and Discipline
For traders who make their own trading decisions rather than relying on an automated system, discipline and dispassion are essential for success. Part-time traders are advised to take profits when they materialize instead of anticipating wider spreads and bigger profits. This requires a degree of self-discipline in fast trending markets in which favorable spreads are widening. Because a trend can turn around instantly and be influenced by some external event that a part-time trader may be unaware of, successful traders take profits when they can. Trailing stop and stop market orders may be imposed to protect against sudden market reversals and to minimize risk. But as mentioned previously, there's no guarantee that an order will be filled at the anticipated price. (For tips on how to analyze your trading and improve, read 4 Reasons Why You Need A Forex Trading Journal.)
Part-time traders with little or no experience are advised to start trading small amounts of currency. By opening a mini forex account, which requires a smaller-than-standard cash deposit, traders can control 10,000 currency units. The standard currency lot controls 100,000 units of currency. Minimum cash deposits for a mini account may start at $2,000 and can be as high as $10,000.
With the leverage offered to traders, which can run as high as 400-to-1, potential profits and losses can be substantial. Leverage is defined as borrowed money, obtained from lending institutions or brokerage firms, which allow traders to buy currency lots on margin. In other words, leverage permits traders to put up only a fraction of the cash represented in a currency lot. For example, with 1% margin, only $1,000 is required to trade a currency lot worth $100,000. (For more insight, check out Forex Leverage: A Double-Edged Sword.)
Finally, never put more money at risk than you can afford to lose.
The Bottom Line
Successful part-time forex trading is a matter of discipline, dispassion and trading the right currency pairs at the right time of day. For the beginner, an automated trading program is probably the best way to break into forex trading, at least until the neophyte trader becomes more familiar with trading procedures and possibilities.
Like any aspect of investing or speculating, there's no guarantee that you'll make a profit. However, smart, knowledgeable, experienced traders - and even beginners at forex trading - will have a better chance at making money if they follow the few simple principles described above. (Aspiring forex traders can start by reading Forex Trading: Using The Big Picture.)
Technical IndicatorsLearn one of the most common methods of finding support and resistance levels.
Forex EducationThe most frequently traded currency pair is the euro/U.S. dollar. The euro is the base currency in the pairing, while the dollar is the quote currency.
Forex FundamentalsDiscover the different options that are available to investors who want to obtain exposure to the Chinese yuan, including ETFs and ETNs.
Forex EducationThese steps will make you a more disciplined, smarter and, ultimately, wealthier trader.
Forex StrategiesEuro traders can execute three simple but effective strategies that take advantage of repeating price action.
Forex EducationEvery day, trillions of dollars trade in the forex market. Here are a few of the most popular currencies, and some characteristics for each.
Forex FundamentalsForecasting exchange rates can help minimize risks and maximize returns. Here are three popular methods for forecasting exchange rates.
Investing BasicsChanges in technology have turned trading into a career field that’s easy to enter. But staying in it is a different story.
Investing BasicsDeciding whether to trade stocks, foreign exchange or futures contracts typically comes down to risk tolerance, account size and convenience.
Forex StrategiesSince foreign exchange rates can impact portfolio returns, investors should hedge this risk whenever possible. Currency ETFs are ideal for such a purpose.
A pip in foreign exchange trading is a measure of a price movement in a currency pair. "Pip" is an acronym for price interest ... Read Full Answer >>
The goals of covered interest arbitrage include enabling investors to trade volatile currency pairs without risk as well ... Read Full Answer >>
A forex trading strategy can easily be implemented to profit from a market reversal signal that comes from the sanku, or ... Read Full Answer >>
Use wedge-shaped patterns to identify bullish or bearish price action when trading currencies in the foreign exchange (forex) ... Read Full Answer >>
You could use time segmented volume (TSV) to build a forex trading strategy, which allows you to compare volume data to determine ... Read Full Answer >>
Both stop orders and limit orders have their advantages and disadvantages; traders need to decide between the two based on ... Read Full Answer >>