How do you make money trading money?
Investors can trade almost any currency in the world, and may do so through foreign exchange (forex) if they have enough financial capital to get started. In order to make money in forex you should be aware that you are taking on a speculative risk ó you are betting that the value of one currency will increase relative to another.
Examples of Currency Trading
It's first important to note that currencies are traded, and priced, in pairs. For example, you may have seen a currency quote for a EUR/USD pair of 1.1256. In this example, the base currency is the euro and the U.S. dollar is the quote currency.
In all currency quote cases, the base currency is worth one unit, and the quoted currency is the amount of currency that one unit of the base currency can buy. Based on our previous example, all that means is that one euro can buy 1.1256 U.S. dollars. How an investor makes money in forex is either by appreciation in the value of the quoted currency, or by a decrease in value of the base currency.
Another way to look at currency trading is to think about the position an investor is taking on each currency pair. The base currency can be thought of as a short position because you are "selling" the base currency to purchase the quoted currency. In turn, the quoted currency can be seen as the long position on the currency pair.
In our example above, we see that one euro can purchase $1.1256 and vice versa. To purchase the euros, the investor must first go short on the U.S. dollar in order to go long on the euro. To make money on this investment, the investor will have to sell back the euros when their value appreciates relative to the U.S. dollar.
For instance, let's assume the value of the euro appreciates to $1.1266. On a lot of $100,000 the investor would gain US$100 ($112,660 - $112,560) if they sold the euros at this exchange rate. Conversely, if the EUR/USD exchange rate fell by 10 pips to $1.1246, then the investor would lose $100 ($112,460 - $112,560).
Make Money Forex Trading
This is one post that I have wanted to write about for awhile, well, actually since it came to my attention a couple months back. However, before I wrote this post I knew that I had to learn more about the subject before jumping into it. So, the question is: can you make money forex trading?
Surprisingly, the answer is yes you can!
However, before we jump into the amount of money you can actually make with this business venture, letís get into the basics of it.
Forex Trading 101: What Is It?
If you are new to the world of online forex trading then it is important that you know what it actually is. Forex trading is when you simply trade foreign currencies against each other from different countries all over the world. The words Forex trading is a simplified terms for the Foreign Exchange market.
Make Money Forex Trading
How Does It Work?
Typically when you begin trading foreign currencies, you will typically do so through an online broker who will place bids for you. Your job as a forex trader will to primarily choose a pair of currencies that you expect to change in their value and place your trade according to whether the pattern is going to drop or increase.
The most common currency pairs that can be traded are:
- USD-US Dollar
- EUR-British Pound
- AUD-Australian Dollar
- CAD-Canadian Dollar
- NZD-New Zealand Dollar
- CHF-Swiss Franc
The Truth About Forex Trading
What many people donít seem to realize about the forex market before jumping into it with dreams of coming out with buckets of cash is that you need to do a BUNCH of research on the topic itself. There is a lot of things that you should know about it before risking your money. Some of the things that you should learn are:
- Cross Currency pairs
- What is a pip?
- What influences change in the foreign exchange market and in currencies?
- What causes currency inflation?
The sad truth is that most people donít do their research ahead of time before jumping into the foreign exchange market and as a result people believe that the exchange market is a total scam when it actually isnít. The exchange market has been around for decades and it is what drives the worldwide economy today.
Pros Vs. Cons Of Forex Trading
- Can make a lot of money in a short time.
- Once you learn the basics, you can begin trading immediately.
- Excellent work from home opportunity.
- Return of investments can be large.
- There is A LOT of risk involved in trading
- If you do not know what you are doing, you can lose a lot of money very quickly.
- Must invest a generous amount of money to be successful.
Can You Make Money Forex Trading?
Yes you can, but your success will depend on how much money you make. There are many people that I know who trade successfully and live the lifestyle to prove it. However, they took years to learn the market and have their own strategies when it comes to trading. This is not something that you want to jump into without doing your own research first.
How Much Money Should I Invest?
Well, that depends. After all of the research I have done I have learned that it is always best to invest anywhere from $500 to $5,000 starting out, but of course in small increments per trade. The more you invest the greater your return of investment can be.
Is Forex Trading A Scam?
Actually, far from it. Forex trading is NOT a scam. As I stated earlier the foreign exchange market has been around for decades. Many people assume this is a scam simply because of the amount of money required to invest. What is worse the people who have not done their proper research and have lost hundreds and thousands of dollars on the forex market the day they begin trading are the ones who claim the foreign exchange market to be a scam.
Common Currency Pairs in Forex Today
My Final Opinion
While I love the Forex market and have begun trading myself, this is not something I recommend to those who are not going to do the proper research first. If this is something that you are very interested in I suggest you look for training in the forex market so you can truly understand it and know how to trade properly before you risk any money. The only place that I highly recommend for this is PipsUniversity as it is the most affordable and knowledgeable forex trading learning center that you will come across.
I canít stress this enough: if you are going to get into the world of Forex trading, DO YOUR RESEARCH BEFORE SACRIFICING MONEY!
How to Make Money in Forex Trading: A Complete Guide for Beginners
The foreign exchange market is the worldís most liquid market, with more than 5-trillion a day exchanging hands. The market is liquid 24-hours a day, 5-days a week, opening in the evening on Sunday during North American trading hours and closing at 5-pm on Friday evening during the same time zone. If you are a beginner and just dipping your toe into trading the forex markets, you should consider following the market and increasing your understanding of why exchange rates move before risking your hard-earned capital.
Learn About the Financial Markets
The financial markets allow investors, businesses, governments and central banks a place to transact in an open market, exchanging their risks to meet their financial needs. A corporate treasurer might need to exchange profits in Euros into dollars, just as a speculator believes that the EUR/USD will rise. There are thousands of reasons why exchange rates and prices moved over a short-period of time, generating noise as participants look for an optimal price to enter or exit a position.
Before you start trading, you should learn about the different types of markets available to trade, and which one you are most interested in following. In addition to trading forex, you can also consider trading commodities, indices, and shares. The best way to learn about a market is to read about why others believe itís moving and the different catalysts that might drive the price or exchange rate in a specific direction. For example, you might start with looking for a style of analysis that is generally provided by reputable brokers such as Alpari. Your goal is to see what type of analysis they offer and what type of actionable ideas come from the analysis they provide. You can also look through a brokerís education section and see if they provide information about why the markets move. In addition to looking at a brokerís education section, you can scan the markets for websites that focus on financial markets education.
Learn to Do Your Own Analysis
There are two main types of analysis that forex traders generally focus on, which include fundamental and technical analysis. Fundamental analysis is the study of macro events that will alter the course of a currency pair. Technical analysis is the study of price action, including looking at momentum, trends and reversal patterns.
The fundamentals surrounding the forex markets is based on the interest rates markets of each of the currencies that make up an exchange rate. For example, if you plan on trading the EUR/USD you want to have a gauge of where interest rates are likely going in the Eurozone as well as the United States. In general, the stronger an economy, the more likely the central bank is to raise interest rates, which help drive up market interest rates. The reverse is also the case for a weaker economy where the central bank and market forces will likely drive interest rates lower.
The best way to determine if an economy is strong is to be able to evaluate countries financial information. This could include their employment information, their GDP, as well as inflation information such as the consumer price index. Most reputable brokers will provide you with a forex economic calendar where you can see what economists expect relative to history as well as the actual release. What is important about fundamentals is that each new piece of information can alter the direction of an exchange rate. If the economic data is greater than or worse than expected, an exchange rate will move to reflect the new information.
Technical analysis is the study of historical prices. Although the past is not always a predictor of the future, different changes following specific studies can give you a gauge of where prices might move in the futures. Some of the more popular technical analysis studies include evaluating momentum. Momentum is the acceleration or deceleration of price changes. If you are interested in learning about technical analysis, you can look at your brokerís education section, or follow their technical analysis forecasts. There are also several websites that will provide you with education on different types of technical analysis tools. Some of the more popular include the MACD, the RSI, and Stochastics.
Find good Broker
Your forex broker facilitates the execution of transactions. While this is their most important function, there are many features a broker like Alpari brings to the table which you should be aware of prior to depositing funds at that broker. First, do some due diligence. Look up reviews by your prospective broker and make sure there are no red flags. Fraud alerts or issues with withdrawing funds are the most important. You also want to make sure there is efficient customer service. You do not want to frustrate yourself by finding a broker who will not answer questions.
The next step is to evaluate the platform. Does the broker have an education section or generate technical analysis forecasts? Additionally, you want to make sure that your broker offers clients a financial calendar. Additionally, you want to find out about the leverage they provide to clients. Higher levels of margin will provide you the option to generate more revenue.
Start with a Demo Account
Most reputable brokers will offer you real-money accounts as well as demonstration accounts. A demo account is one where you are trading paper money, not real capital. Most good demonstration accounts offer nearly all the products that are available to trade will a real-money account. The prices will likely be in real-time or close to real-time. In addition, you will have access to most of the education and forecasting information your broker provides to real-money clients. Once you feel like youíre ready for a real-money account you can make the switch from a demo account to real funds.
There are several steps you should take before you start transacting in the forex market. You need to first learn about the financial markets and the type of information you can learn about prior to trading. Try to learn about both fundamental and technical analysis. Find a forex broker that you believe is trustworthy and provides a plethora of information. Lastly, use a demo account before you begin to risk real money.