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Making money by trading money

July 10, 2008 12:00:00 AM PDT
These days, Americans are trying whatever they can to make their money work for them. There are lots of options out there like stocks, bonds and CDs. But now a growing number of people are trading in markets that may seem "foreign" to many of us: currency trading. Not only will you see how currency trading works but you'll find out about the risks too. It is possible to cash in on these money markets, but be careful who you do business with.

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Buy, sell, trade -- it's the name of the game for many when it comes to making a profit. But, Wall Street's not the only way to wheel and deal. The latest craze: trading cold, hard cash.

"Just like you buy stocks with the anticipation of making money, people trade currencies with the anticipation of making money," said currency trader Marc Prosser

The goal: To trade one type of currency for another that you think will appreciate in value.

"I trade the euro versus the dollar. In the past, I've traded the British pound versus the dollar," said currency trader Lee Martin.

You can trade any two currencies, but among the most popular: the dollar, pound, yen and euro. Here's how it works: Say you want to buy euros with dollars and the exchange rate is 155; that means you can buy one euro for one dollar and 55 cents.

"If the euro would go up to 165, essentially you would make 10 cents for every euro you bought," said Prosser.

You can also bet that a currency will depreciate in value compared to another.

It was always the large banks and credit institutions that typically traded. But now individuals can go through brokers or log on to any number of online trading sites to buy and sell on their own.

Lee Martin is hooked. He's a counter installer but finds time to watch the money markets closely

"It's extra money. If I end up with an extra five, 10 grand, I'll maybe go buy something I want," said Martin.

"It's very risky. You can lose all your money," said financial planner Meg Green.

Financial planner Meg Green doesn't recommend currency trading for the average person. But if you're going to do it, use only what's called "risk capital" -- that's money you can afford to lose.

"I've seen plenty of people break themselves. You work so long and so hard to gather your money together. To start gambling with it, just doesn't make sense to me," said Green.

Even the brokerage sites warn trading is chancy. They suggest first using what's called a "practice" or "demo" account.

"You can take play money and trade it under real market conditions. As a rule of thumb, if you can't make money on a practice account, you will not make money trading a live account," said Prosser.

To this day Lee Martin still uses a practice account in addition to his real trading. He's lost some cash at times, but...

"Even if I had to just trade demo accounts the rest of my life, I would still do it, for the thrill and passion of doing it," said Martin.

The U.S. Commodity Futures Trading Commission (CFTC) has jurisdiction over foreign exchange activity in the U.S. When trading in foreign exchange markets, you should only trade with a CFTC-registered entity. The CFTC warns right on its site that trading is risky and the average investor should be wary. They also warn as the popularity increases there are scams out there, so be careful.

U.S. Commodity Futures Trading Commission

Forex.com

MG Financial Group

Hotspot FX

OANDA FXTrade

Easy-Forex

I-Trade FX

Forex Capital Markets

Forex Club

GFS Forex and Futures

 

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