How to earn on Forex
Most traders who participate in the currency market pursue the same objective – to make money by trading forex.
It all seems simple at first: working on forex is not much different from trading other markets (commodities and financial). The main thing is to buy cheap and sell dear. The difference between the buy and sell price makes your profit. The goods traded on forex are currencies or rather currency pairs. For example, EUR/USD or GBP/JPY.
Anyone can participate in the currency market, it is not limited to banks, large companies, funds, and millionaires. Even a modest sum of, say, $100 is enough to start making money on forex. You first need to choose a broker and open a trading account. The broker will provide you leverage.
Definition of Leverage:
"Leverage is an interest-free loan provided to a trader by the broker. So using 1:100 leverage a trader can purchase a contract worth $ 100 000 with just one hundredth of the sum - $ 1 000. Therefore the profit will be one hundred times bigger compared to trading with just your own money. Learn more about leverage and margin trading."
Therefore, although it is hardly possible to manage with literally zero investment you can start trading with minimum initial deposit.
And now we have approached the question of whether a person with no special qualifications or large sums can profit from trading forex.
Working as a Trader on Forex
Many people think that being a currency trader requires a degree in the field of finance, advanced mathematical and economic skills etc. But that is not so. In fact the key to open the door to making money on forex is the ability to predict the direction of future price movements. Modern analytical tools built into trading platforms help make the process of analyzing the market much easier. No degree in mathematics is needed to use mathematic tools for analyzing price moves, all it takes is just clicking a few buttons in trading software.
Definition of Trading Software:
A trading platform (trading terminal) is the software that allows traders to participate in the forex market via the Internet. The software is installed on your computer and allows you to monitor the situation in the market, analyze it quickly and efficiently, receive latest news and analytics and, above all, to buy and sell currencies online from home. The most popular platform for internet trading is MetaTrader.
Everyone regardless of education, age and experience can master the ins and outs of trading forex market as well as stock and commodities markets. No matter how much money you have. with enough effort and discipline anyone can learn to earn money on forex.
People who actually made money on forex do exist. And the list is not limited to world famous billionaires like, for example, George Soros, but also includes ordinary people who know how to trade on forex. The daily turnover of currency market has seen dramatic growth over the last decade as internet technologies advanced significantly to allow private investors to actively participate in trading. Simultaneously steady income from forex became available to most people worldwide.
And naturally nowadays the available profit opportunities are not restricted to forex trading. Brokerage companies also provide access to stock and commodity markets. But still, trading stocks and commodities turns out to be less attractive for beginners for a few reasons:
- Exchange trade requires having a considerable amount of trader’s own money due to significantly lower leverage levels.
- Forex, as opposed to stock exchange trade, promises fast income. Forex market operates 24 hours a day, and exchange rates fluctuate considerably.
It is not a question any longer for investors from mature economies whether it is possible to earn on forex. Yet another question that had been praying on novice traders’ minds was also answered long ago: How much can one earn on forex? The profit opportunities are not limited. The global currency market offers mind-blowing possibilities. The key is to know how to trade wisely and make money on forex.
How to work on forex
It is possible to profit from both exchange rates rises and falls. While there are dozens of forex trading strategies, and as you gain experience you will learn many of them, in fact they all come down to just two basic methods relying on either rise or fall of prices.
Let’s consider the following easy example of trading basics.
1. The price goes down
Suppose, you have opened a trading account and deposited an amount of, say, $2 000. You decided to trade EUR/USD currency pair and expect the EURO to go down. What is your next step?
Step 1
Place a sell order in the trading platform. For example, you have ordered your broker to sell one lot of EUR at, say, 1.43380. If your leverage is 1:100 you needed 1433.8 of your own funds.
The size of a standard contract on the forex market is 100 000 units of base currency, which amounts to one lot. For example, one lot of EUR/USD is equal to EUR 100 000, and 0.1 lot is equal to 10 000 EUR.
Step 2
Wait till the price goes down to, for example, 1.38640.
Step 3
Close the trade. You have bought one lot of EUR back at the new price – 1.38640. With the leverage of 1:100 you needed only USD 1386.4 of your own funds.
Step 4
Calculate your profit: You gained $4740 – the difference between the sell and purchase prices for one lot of EUR/USD. Not too bad for 4 days, isn’t it? This is how you can profit from the currency rate drops on the forex market.
2. The price goes up
To get an idea of how to earn on forex when prices go up, let’s consider another example. Suppose, the euro is about to rise:
Step 1
Buy 1 lot of EUR/USD at 1.38640. You will only need USD 1286.4 (remember about leverage!).Step 2
Wait till the price goes up to reach the level of, for example, 1.40620.
Step 3
Close the trade. (You are technically selling EUR 100 000)
Step 4
Thus, within just a few hours we have earned $ 1 980 (the difference in the value of the contract given that the price rose from 1.38640 to 1.40620). Both examples show how much profit an experienced forex trader can make.
How to Gain Real Profit from Trading Forex
Many people think that after acquiring basic knowledge of how to earn on Forex one can immediately start trading and get huge profits. This is not quite right though, as real trade takes a lot of effort. When analyzing the historical data everything seems far more obvious, as you can see all the price changes. Trading in real-time mode turns out to be much more complicated.
The key factor determining trader’s success or failure is his ability to forecast the direction of price movement. Our example clearly demonstrates how a novice trader can make profit on forex. However, to really have sustainable income one has to learn how to apply instruments of fundamental and technical analysis and how to control emotions.
Technical analysis relies on mathematical calculations to predict future price movements. Fundamental analysis is more about psychology. It allows a trader to predict how political and economic events affect the market. And here analytical reports compiled by market experts, major news feed and economic calendar come to aid. The combination of these two types of analysis will provide the most clear vision of future trends.
The basic principles of trading on the currency exchange market are familiar to almost everyone nowadays. You probably even know someone who has made money on forex personally. Thus it becomes clear that profiting from trading currency pairs on-line is, indeed, possible. However your personal potential income depends solely on you.
Complete a training course to learn about the basics of trading, practice on a demo account, pay special attention to funds management principles and psychological aspect of trading, and do not forget to keep working on yourself! With the insight into how to start trading on forex and make the most out of each and every trade you will become a real expert of financial markets. And soon, probably, you will be telling your friends how to earn a million on forex!
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