Ever traveled abroad and exchanged a few of your bills for a bank or Forex stall? Then you have participated in a currency trade! In a similar way, if you pair currencies with each other and earn profits based on the fluctuating rates, that is how to make money with forex trading.
Here’s How To Make Money With Forex Trading
Like investing and trading shares of a stock, the principle of Forex is to buy currencies when they are low and then sell them when they are high.
Extremely volatile like Bitcoin, Forex prices can change several times in a minute. Forex traders take advantage of this type of volatility.
Forex trading is not possible without price fluctuations.
However, not all currencies are traded in the Forex market. There are only 8 currencies to match each other and they are AUD, USD, EUR, JPY, GBP, CHF, CND, and NZD. These currencies have enough volatility for investors to take advantage of.
How Do Investors Make Money By Trading Forex?
To be able to trade in the market, you must first select a currency pair. Let’s use the AUD/USD pairing for this case. Let’s suppose that 1 AUD = 0.77 USD. This means that a trader can buy USD at 0.77 for every Australian dollar he owns. Now suppose after 10 seconds the price has changed and now 1 AUD = 0.79 USD. At this point, traders can exchange or sell their USD and earn 0.02 USD. This example does not show Forex’s chances of high profitability, but it is definitely the goal on a larger scale.
If the forex trader sells $10,000 each for a profit of 0.2, he will have earned $200 in just 10 seconds! That’s how you make money with forex trading!
In addition to trading foreign exchange using spot prices, traders benefit from leverage. FXCM suggests that liquidity in the Forex market is so deep – about US$5 trillion (AUD$6.50 trillion) per day – that banks allow them to trade with leverage. Basically, leverage is a loan provided to traders by Forex brokers who manage their accounts.
Traders need to open a margin account with their broker to ensure they have leverage.
The amount of leverage is usually 100:1, 50:1, or 200:1.
The margin account to be given to a trader depends on the size of his capital. 50:1 leverage is the minimum margin requirement while 200:1 is the maximum. If you are trading 200:1, you can trade AUD 2,000 in the market using only a $10 margin on your account.
This gives traders more exposure to diverse currency pairs while keeping their capital to a minimum.
The Important Thing To Remember About Leverage:
While traders are allowed to leverage their trades and therefore increase their profit potential, experts recommend using this tactic sparingly. Because while leverage can increase your income, it can double or triple your losses.
If you are new to Forex, you should always start by trading at lower rates until you read past price charts and realize economic events that affect currency prices.
If you want to set yourself on the path to becoming an experienced trader, you should start learning how to trade Forex using a fake account. There are sites that provide free fake accounts that you can take advantage of for forex trading. Some even include tips on how to read price trends and key factors that influence currency price movements.