How to Make Money with Forex Trading
Forex market is a market where people trade currencies. As a person looking for other source of income, you can make money with Forex trading. In the Forex market, you buy or sell currencies, and anyone can trade on Forex.
It is one of the ways to make money, and is simple by placing a trade in the foreign exchange. Trading forex works the same way you trade in other financial markets like the stock market. It works based on the same principle. So, if you have any experience in trading, you should be easy for you to quickly get along.
How To Make Money Trading Forex
You must understand the objective of forex trading. Everyone is in business with aim of making profit. Likewise, in forex trading, the objective is to exchange one currency for another with the expectation that the price will rise and cash-out to gain more. In the same vein, when you buy a currency, the currency you bought will increase in value compared to the one you sold.
What is a currency pair?
This is one of the terms you should be familiar with if you want to make money with forex trading. In the market, currencies are traded in pairs, for example, the euro and the U.S. dollar (EUR/USD). If you want to buy Euro for dollars, for instance, just open the EUR/USD trade and press “Buy”. Similarly, if you want to buy dollars for Euro, follow the same step, and choose “Sell”.
How do you make money on Forex?
If you want to make money trading forex, you buy a currency pair at a lower price and sell it at a higher price. Now the income you make is the difference between the Buy and the Sell price. While broker gets a tiny commission from your trades called Spread.
Let’s see how you make money on forex. For instance, you $100 on your trading account and want to trade EUR/USD. The exchange rate between the two is 1.25, which tells us that for 1 euro you get 1.25 US dollars. The exchange rate is the price tag of each currency just like you’ve in a grocery store. But while the price tag on commodity is fixed at least for some time, the price tags on Forex keeps changing all the time. It fluctuates.
Then, as an investor, you make a forecast by believing that Euro will rise against the US Dollar.
Next, you decide to buy 80 euros for your $100 and wait for the exchange rate to change.
Now, let’s predict that it rose from 1.25 to 1.35, that is a profitable scenario for you, so at this point, you can close the trade. Now, you can take a step further by exchanging your 80 euros back to 108 dollars, and get your profit of $8.
You may be thinking that can this really be a way to make money considering the profit margin. The good news is that you can get a broker and help you make much more money with a special tool called leverage. Leverage is the funds your broker lends you in order to multiply your deposit.
In conclusion, currency rate depends on its supply and demand, just like in the physical commodity. It can change based on the economic situation of the country (GDP, inflation, the labor market situation, etc.). This is why currency rates are greatly affected by political, economic and social phenomena just like the local economy is influenced.
If you want to make money with forex trading, equip yourself with these 2 major tools that indicate the best moment to buy or sell. They are fundamental analysis, and graphic analysis.
