How to make a lot of money trading forex

How to Make Money Trading Forex

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Day 1. You decide to exchange 14, U. This means for every 1. You go on holiday, to the U. The 10, GBP remains as is for the next 2 weeks just sitting in your wallet. Day 14 2 weeks later. The above example is a brilliant demonstration of how money is made trading forex. Lets take a look at what this looks like on a price chart, to get an appreciation of what's just happened:. It seems a bit impractical to having to go back and forth to a foreign-exchange dealer to profit in this way, and that's where the advent of online trading brokers came into existence. I'll talk a bit more about those later, and if you want more detail, here's a complete guide on choosing a good forex broker for when you get started.

Not to dissimilar to those online betting apps, you have a list of forex pairs, and away you go So naturally it makes sense to discuss, how do forex pairs work? The first thing to grasp is that currencies have exchange rates when traded. An easy way to remember this is to read the pairing from left to right. The left-hand-side currency is known as the base currency , and the right-hand-side is known as the quote counter currency. On the right side, we have our counter currency sometimes this is referred to as the quote currency.

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The exchange rate is 1. Now, when we buy a currency pair our expectation is that the base currency Euro in this example is going to increase in value, and the counter currency USD will depreciate. The opposite holds true when we sell.

A good way to remember this is to think, you have to look down at a short person, so going short must mean you think the market is going down! And then Long must be the opposite by the process of elimination. Going long buying , we expect the base currency to strengthen while the counter currency weakens - all at the same time relative to each other.

Going short , we expect the base currency to weaken while the counter currency strengthens - all at the same time relative to each other. Now in terms of the actual exchange rate number, this is where it becomes really simple and all comes together. When longing we want the exchange rate to go up, and when shorting we want the exchange rate to go down.

This is the bid and ask price. The difference between those two prices is known as the spread. The reason these 2 prices exist is that this is one of the ways the brokerage makes money. What is Bid? In other words, the price at which you can sell the base currency, and buy the quote currency. What is Ask? In other words, the price at which you can buy the base currency, and sell the quote currency.

What is Spread? You may notice, the price at which you can buy at ask is higher than the price at which you can sell at bid. This mechanism means as soon as you click that buy button you will instantly be in a very small loss. The same holds true when you short. That small loss is 3 pips, or 0.

They are a business after all Essentially a derivative of the actual asset itself. This has excellent benefits, as it allows you to instantly buy and sell forex pairs, without having to own a massive safety deposit box to store all your cash! Can I still trade? Yes, you can by trading on margin and using something called leverage. One of the key benefits of trading CFDs is the ability for you to trade on margin.

The easiest way to explain this is by breaking down margin into its components:. The initial margin is what you initially deposit into your trading account at the beginning. It's essentially the collateral you place against a trade , to give the broker confidence you have the funds to open larger positions. Imagine this as a deposit you put on a house, so the bank knows you're serious about buying a house. In forex, this deposit if your initial margin, and gives the broker a sign that you're serious about open some trades. The margin requirement is the amount your broker requires in order for you to open a.

This is usually expressed as a percentage and is also known as leverage when expressed as a ratio. As a trader, this means you can hugely amplify your returns, but at the same time amplify the losses.

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He really knew his stuff that guy. It should all start to make a little bit more sense now on how money is made when trading forex. The powerful tools of leverage and CFD's combined make trading one of the most profitable vehicles you can choose to drive. But before we can start making those returns, we need a plan.

10 Ways to Avoid Losing Money in Forex

This will be your forex trading strategy A forex trading strategy is a plan you make to build a money-making portfolio. A good forex trading strategy will answer the following questions, no more and no less:. The aim of the game is to try and predict which currency will gain strength and increase relative to another currency. In forex those questions can be replaced with the following steps:. In this step traders will determine the value of each currency, to determine if you want to buy it or sell it, based on its fundamental value.

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In this step traders check the current price, and historical price of the forex pair and compare it against your value calculation. If its below value, buy, if its above value, sell! In this step traders will work out at what price they're willing to take their profits, or minimise losses.

A forex strategy must have a structured plan that encompasses valuation, optimisation and risk management, in a quick and easy fashion every week. To understand this, we need to look at something called fundamental analysis. This is where we consider a variety of economic variables to determine the supply and demand of a currency. Simply, how much money is there in circulation in the economy. Each currency is backed by an economic region or country. Therefore, what we want to do is take a deep look into how well that economic region is doing to decide whether we want to buy or sell their currency.

A lot of traders use things like a macro currency strength meter to do this for them, as it's not an easy task to do alone.

The first step to answering the questions of "what" we want to buy or sell, is to change the question to:. There are 6 key factors to consider:. These 6 broad categories are essentially how global macro traders, from investment banks, right the way to your stay-at-home novice value a currency. Once analysed, this will tell us, in the future, if there will be an increase or decrease in the supply of the currency for a particular region. Then from this, we can answer our original question of "what" we want to buy or sell by understanding the basic principles of supply and demand theory The theory of supply and demand suggest the amounts of goods and services available for people to buy in comparison to the amount of goods and services that people want to buy.

I think the best way to explain this is with a little example:.

Once upon a time, in a small town, there was a Gold mine. The miners were working for 2 weeks and found an almost infinite amount of gold, and it was easily accessible to the whole town. In this town, there was a massive "supply" of gold. As the gold was so easily available, the "demand" for gold was quite low.

This made it cheap. Day After a month, there was a storm, and it flooded the mines, washing away all the gold that the village had, leaving a small stockpile that was in the Mayor's house.

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Gold has now become scarce, and the "supply" has become restricted. As the gold was no longer easily available, the "demand" for gold has drastically increased. This made it a lot more desirable and more expensive. There are 2 rules we can gain from our story:.

How to Make Money Trading Forex: Guide

This same principle applies to currencies. By using our fundamental analysis, we can determine the supply and demand of the currency, and by net effect, its value. And just like that, we know "what" we want to buy and sell, and "why" we're doing it The most powerful trading strategy there is and is used by nearly all investment banks and you soon enough you'll be using it too budding forex trader. But Marcus, how do we know whether there is more or less money in circulation? The trick is to use a scoring system for each economical variable which makes it easier for us to interpret the data.

This is essentially what a macro currency strength meter would do to make it really easy. Our macro currency strength meter has already considered if there is more or less money in circulation for the United States and Japan.

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