Make Money In Forex Trading with ease by following the best strategies of forex investment we would give in this article. Forex market is just like any other market where instead of foods and goods people trade currencies.
Buying currency pairs and selling them at a higher price is not the only way you can make money trading forex. The truth is that buying and selling is just one way you can use forex trading to make money.
There are other options to make money on forex trading and we will talk about them in this article.
Anyone can trade on Forex, but it is only accessible through mediators called brokers. Basically, broker is your “hands” on Forex which provides you with the access to the market.
What is a Forex Broker?
Forex brokers are firms that provide traders with access to a platform that allows them to buy and sell foreign currencies.
Transactions in this market are always between a pair of two different currencies, so forex traders either buy or sell the particular pair they want to trade.
Function Of Forex Broker
- Forex brokers allow traders access to the foreign exchange market for currencies.
- Most brokers service retail clients, though larger banking firms service institutional clients as well.
- Forex brokers allow clients to trade with very substantial leverage.
- Forex brokers make money primarily on the bid-ask spread, but may have other ways to do so as well.
What is Forex Trading?
Forex stands for foreign exchange and is used to describe trading in the currency market by investors and speculators.
Just like an investor can trade stocks or commodities, an investor can trade currencies and try to profit from the difference in the exchange rates between 2 countries’ currencies.
For example, if a trader expects the euro to strengthen against the US dollar, he will sell dollars to buy euros. If the euro strengthens, he will then sell euros for dollars and thus increase the initial sum he has in dollars.
Is Forex trading Risky?
Forex trading is very risky. Forex should be traded with only risk capital, which is investor speak for money you truly can afford to lose.
At the same time, there is no need to be afraid of the risk. As trader, you have to take reasonable risk, which is exceeded by potential reward, and make efforts to decrease risk.
We will talk about these efforts in the final, seventh part of our course.
How Much Can You Make From Trading Forex?
How much money can you really make trading Forex? There are a lot of websites out there that claim to double or triple their money every month.
However, in practice professional traders return 20-80% a month, so a return of 20-30% is both a realistic and a reasonable expectation.
Remember that currency trading is like any investment vehicle, and having realistic expectations for what you can make is going to set you up to succeed more. Than thinking that you can get rich quick after the $50 investment.
Why You Should Choose Forex Trading
There is a number of reasons to choose trading on Forex market as a way to make money:
1. High liquidity and volatility.
Liquidity means that there is a lot of money fluctuating in this market – more than 5.3 trillion dollars a day.
As a result, it takes fractions of a second to open and close positions. Volatility means that exchange rates are usually very lively, and you can profit on the moves of the price anytime you like.
2. All trading is done through the Internet.
There is no physical location, where investors go to trade currencies.
All the currency trading we will do, will be done online. You will just need to download special software from the website of a broker or use a web trading terminal.
Trading terminal will connect you to the real-time quotes of various currencies.
3. Forex market is open 24 hours a day, 5 days a week.
from Monday morning till Friday night. You don’t have to wait for specific trade sessions like when trading stocks – trade when you have time!
The main participants of trading are commercial banks, so currency quotes are set at the interbank market. You will be able to trade at this market as well through a Forex broker.
4. Lower cost of trading.
The cost you pay to your Forex broker is much less than the amounts you would have to pay to trade other securities such as stocks.
5. The ability to use leverage,
Which provides you access to trading with bigger amounts of money than you have on your deposit.
For example, if the leverage is 50 to 1, it means that for every one dollar you have in your account, you can control 50 dollars in the Forex market.
Thus, the leverage increases your potential profit. Beware though, that if the price moved against you, the amount you lose will also be bigger because of leverage.
As a result, you have to understand the risks and choose the reasonable, not the maximal leverage size.
How To Make Money In Forex Trading
People make money in forex trading by buying a currency pair at a lower price and sell it at a higher price, and their income is the difference between the Buy and the Sell price. Broker gets a tiny commission from your trades called Spread.
For example:
Let’s assume that you have $100 on your trading account and want to trade EUR/USD. Its exchange rate is 1.25, which means that for 1 euro you get 1.25 US dollars. Exchange rate is like a price tag at the grocery store the only difference is that the price tags on Forex are changing all the time.
Then, you make a forecast – for example, you believe that Euro will rise versus the US Dollar.
Next, you buy 80 euros for your $100 and wait for the exchange rate to change.
Let’s imagine it rose from 1.25 to 1.35 – it is a profitable situation for you, so you can close the trade at this point. Now, you can exchange your 80 euros back to 108 dollars, and get your profit of $8.
If you think this amount of money isn’t worth bothering, there’s great news: your broker can help you make much more money with a special tool called leverage. Leverage is funds you borrow from your broker to multiply your deposit.
For example, if you used the leverage of 1:3000 at FBS for a similar trade from the previous example, you would get $2400 with just one trade. So, you invest $100 and trade $300 000! Not bad, right?
Note: higher profit involves higher risk, so risk management is an important part of trading!
Use of broker’s leverage
Maybe you have noticed that most brokers offer a certain level of leverage for your trades. Depending on some factors, they may offer you a leverage of 1:30, 1:50, 1:100 and so on.
While the leverage is not exactly a way to make money, it can help you to boost your profits and, unfortunately, make losses if not used wisely.
Trading forex binary options
Binary options are another way in which you can make money with forex. They gain popularity among traders because of their simplicity and the possibility of making profits in excess of 70 per cent – that’s why they are also referred to as fixed-return options.
By trading binary options, you can speculate on the direction of the price movement irrespective of the size of the movement where the basic binary options form is the high/low.
Trading currency pairs
Trading usually means buying something at a low price and selling it at a higher one, so the difference between the buy and sell price is our profit. When this concept applies to trading currency pairs you can say that you take a long position.
