Currency trading a.k.a. Forex trading is all about buying and selling currency. Sounds ironical right? Well, that’s the world of Forex trading and if you learn the core basics and have great analytical skills, then yes, you can make money in currency trading. If you are new to currency trading, then don’t worry as we will guide you through the whole process and help you understand how to make money with Forex trading. Trading currency is no different than trading in stock market. You simply need to trade currencies instead of stocks when it comes to Forex trading. By the end of this article, we assure you that you will learn the basics of how to make money on Foreign Exchange market.
Currency trading is exchanging one currency for another to make a profit based on market trends. Just like the stocks, even currency rates differ and change based on varied reasons. Hence, if you are good with your analytical skills, you will know how and when to exchange currency in order to make a good profit out of it.
Make Money in Currency Trading
#The Basics of Making Money in Currency Trading
Before you start anything new, you must learn the basics. In the trading business, basics are the key as you will discover a whole new universe out there when it comes to Forex trading. You must learn about the keywords, the right phrases to understand the whole concept and trends in the currency market.
Starting with the basics, the basic definition of Forex trading is exchanging one currency for another. The word “Forex” is also the short form of Foreign Exchange. As simple as it may sound, exchanging currency from one form to another has different dimensions. The Forex rates constantly change on a daily basis and it is very unlikely that you will buy and sell a particular currency at the same rates.
Hence, you need to understand the trading concept and analyze market trends properly. Do not, and I repeat, do not invest a lot of money in currency trading that you can’t afford to lose. The basic idea behind Forex trading is to buy the foreign currency and sell them at the right time to make a profit out of it.
And, that’s how you can make money in currency trading.
Let’s consider an example of EUR/USD exchange.
Assume that the currency rate for 1 Euro is 1.18 USD and you buy 10,000 Euros spending 11,800 USD. After a while, you decide to sell your 10,000 Euros when the currency rate spikes and stands at 1.25 USD for 1 Euro.
You will get 12,500 USD and earn a profit of $700. Well, that’s just an example of profit. If you sell Euro at a rate below than when you bought them, you will end up making a loss.
Hence, it is necessary to monitor the trends and analyze when to buy and when to sell the currency. While learning how to make money on forex trading, it is also very important to understand Forex quote.
#Understanding Forex Quote
Forex Quote is an important term in Forex trading. You need to learn about it thoroughly before making any kind of trades. When it comes to currency trading, the exchange rates are often quoted in pairs.
For example, the rates of GBP in exchange for USD will be quoted as GBP/USD. In short, USD/INR represents the exchange rate of USD for INR.
Here, the currency that comes before the forward slash (/) is known as the base currency, whereas the currency after the slash is called counter or quote currency.
In short, you have to pay in units of quote currency to buy 1 unit of base currency. If the Forex quote for GBP/USD is 1.67281, then you must pay 1.67281 U.S. dollars to buy 1 British Pound.
In terms of selling, you will receive 1.67281 U.S. dollars when you sell 1 British Pound for the same example above.
Well, as you dig deep into Forex trading, you will learn about some more complex things and terms of the business. However, we would advise you to strengthen your basics about currency trading before jumping to more complex things.
Making money with forex trading gets simpler when you stop relying on things to happen and rather work on making things happen by proper analysis and research.
#How to Make Money on Foreign Exchange Market?
Well, if you ask us, trading of any sort is kind of a gamble where you buy in something expecting it to add some value in the future so you could sell it and earn a profit. In that scenario, Forex trading is a gamble but not based entirely on luck.
While luck plays its part, the one thing that would yield better returns in Forex trading is your analytical skills and understanding of different currency markets. The best way to learn the trade secrets of Forex trading is experiencing it yourself. You may find tons of guides and trading systems all over the internet. While each guide or the trading system may serve its purpose but there’s nothing as great as self-learning.
Unless and until you experience the market changes in real, there’s no way you can understand the basic trading technique required for making money in Foreign Exchange. It’s important to stick on to one simple strategy followed by a lot of in-depth analysis and backtesting.
Instead of falling for the modern day over-hyped trading systems, we would advise you stick to the simpler methods such as price action trading and Forex backtesting. With the price action trading system, you simply need to monitor the market prices over a period of time. Such past market trends are displayed in the form of a price chart which is simple to understand and lets you decide the right time to buy currency or sell it.
You can begin with one price action trading system and try to master it by focusing entirely on that particular system. The currency rates are mostly affected due to market changes and hence concentrating on a single price action trading system will help you keep focused rather than causing distractions because of so much happening in the finance industry. Also, price action trading setup will help you understand the market trends better without any need for keeping an eye on the global trends and news updates.
Warren Buffet once said, “Profitable Traders do nothing 99% of the time”. It simply means that once you opt for a particular strategy, you must give it some time to work and simply keep regular watch every now and then or set price alerts instead of hovering around it for 24 hours.
With modern day technologies and internet at our service, making money on Forex was never as easy as it is today.
#How to Make Money with Forex Trading?
To begin Forex trading, you need a Forex account. Just like equity trading requires you to open a trading account, similarly, Forex trading also requires a trading account. Each trading account will differ from one another in terms of services and commission rates. Hence, choose the right broker to open a Forex trading account.
Here are the two important factors you must consider while opening a trading account.
If you don’t understand what leverage stands for in the trading industry, then let us explain it to you. In simple returns, as the leverage goes higher, the risk involved gets higher too. Hence, you need to choose the right leverage or else you end up losing large chunks of money.
Leverage basically means that broker will lend funds to the trader based on the leverage factor. If the leverage factor is 50:1 and the trader invests $1000 in the trading account, then the broker will lend $50,000 extra to trade in the market. You may find leverage ratio ranging from 50:1 to as high as 250:1. Most traders opt for 50:1 as it reduces the risk factor.
Leverage may seem to be a handy deal when the odds are in your favor but at the same time, it can be a curse if things are going downside as you may end up owing large sums of money to the broker. Hence, it is advisable to choose the right leverage ratio when opening a trading account and invest wisely based on trends and planning rather than impulse.
Unlike equity trading, there are no commission or broker fee on each trade. As there are no other parties like broker involved directly in Forex trading but you trade directly with market makers, there’s no purpose of setting up a commission fee of any kind.
This is because the market makers are already making money for each time you trade because of the spread value of ask and bid price. Hence, you must always choose the trading firm that is reputable and reliable.
With more research and experience in this business, you will eventually learn how to make money in forex trading.
Over to you!
We hope that now the concept of Forex trading will be much clearer. Remember to stick with the basics and focus on the simple strategies of the trade. It’s not important to follow the others but to analyze the Foreign Exchange rates yourself.
Look for the past performance and try to estimate the rise and fall of the currency rates you are planning to trade and play wisely. Try experimenting with small chunks of money that you can afford to lose and try to make some profit.
With the focused and detailed planning, you will be able to make money in currency trading quite easily.
Good Luck Trading!