How to Make Money on Forex
Forex market is just like any other market where instead of
foods and goods people trade currencies.
WHAT IS FOREX?
Forex market is just like any other market where instead of
foods and goods people trade currencies.
WHAT IS FOREX BROKER?
Anyone can trade on Forex, but it is only accessible through
mediators called brokers. Basically, broker is your “hands” on Forex which
provides you with the access to the market.
WHAT IS A CURRENCY PAIR?
Currencies on the market are traded in pairs – for example,
the euro and the U.S. dollar (EUR/USD). Want to buy Euro for dollars? Open the
EUR/USD trade and press “Buy”. Want to buy dollars for Euro? Do the same and
choose “Sell”. It’s simple, just remember that your action always refers to the
first currency of the pair.
HOW TO MAKE MONEY ON FOREX?
People would buy a currency pair at a lower price and sell
it at a higher price, and their income is the difference between the Buy and
the Sell price. Broker gets a tiny commission from your trades called Spread.
For example:
Let’s assume that you have $100 on your trading account and
want to trade EUR/USD. Its exchange rate is 1.25, which means that for 1 euro
you get 1.25 US dollars. Exchange rate is like a price tag at the grocery store
– the only difference is that the price tags on Forex are changing all the
time.
Then, you make a forecast – for example, you believe that
Euro will rise versus the US Dollar.
Next, you buy 80 euros for your $100 and wait for the
exchange rate to change.
Let’s imagine it rose from 1.25 to 1.35 – it is a profitable
situation for you, so you can close the trade at this point. Now, you can
exchange your 80 euros back to 108 dollars, and get your profit of $8.
If you think this amount of money isn’t worth bothering,
there’s great news: your broker can help you make much more money with a
special tool called leverage. Leverage is funds you borrow from your broker to
multiply your deposit.
For example, if you used the leverage of 1:3000 at FBS for a
similar trade from the previous example, you would get $2400 with just one
trade. So, you invest $100 and trade $300 000! Not bad, right?
Just remember: higher profit involves higher risk, so risk
management is an important part of trading!
HOW TO MAKE FORECASTS?
The last question is: how do traders know what currency
pairs to trade and when to buy or sell them?
Currency rate depends on its supply and demand, which may
change depending on the economic situation of the country (GDP, inflation, the
labor market situation, etc.). This is why political, economic and social
phenomena that influence local economy also influence currency rates. Learning
HOW these factors influence profitability is the key to Forex trading.
There are 2 major tools that indicate the best moment to buy
or sell.
Fundamental analysis
It is all about following economic news in different
countries.
For example: you see that Canadian unemployment rate
declined, which means that the CAD will rise. Sell USD/CAD and just wait!
A thing like that happened on January 5th, 2018 – Canadian
unemployment rate fell, and USD fell to CAD from 1.250 to 1.236. Trading $100
with 1:3000 leverage, a trader could have made a profit of $3398.
Graphic analysis
You can use currency rate charts to make forecasts – the
pattern on the graph can tell you what to do. Let’s review the simplest and
most popular “Head and Shoulders” pattern.
It consists of three peaks that make a “head” and two
“shoulders”.
When all three peaks are formed, draw a neckline through the
lows that were formed by all three peaks. After that, measure a distance from
the “head” peak to the neckline. It is an approximate distance that the pair
will go down from the neckline. The “Head and Shoulders” pattern is a strong
signal to sell.
Luckily, you don’t need to have a degree in finance to
master it! FBS broker has an exceptional section of educational and analytical
materials explaining how to act when prices go up or down in simple terms.
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