HOW TO START MAKING MONEY FROM FOREX TRADING

THE MOST EFFECTIVE STEPS TO TAKE TO START MAKING MONEY FROM FOREX TRADING.

 You must have heard about the forex market and how much money is being made by forex traders daily. Or how much is being lost for that matter. You may intend to become part of the profitable market but you are sceptical because you are not quite sure how to go about it. If you have experience in the stock market, you will pick forex trading up real fast. This is because of the similarity in liquidity and interest of both markets. Even without it, by the time you are done with this article, you will be fully confident to dive into the forex market. First, it’s important to know what the market is.

Understanding the Forex market:

If you are, or are planning to become a forex trader, you are (or are about to be) part of something very important to the business world. The forex market is a virtual 24 hours market where people trade in currency. It is a competitive online world with individual traders, companies, banks and government down for buying and selling through the ‘interbank market’. Speculatively, the market pumps in and out, a $5 trillion average per day.

Here, the goal is for people exchange two currencies, the base currency and the quote currency. That is the currency you are selling and the currency being bought. You may consider forex as trading in a country’s shares. By buying a country’s currency, you are essentially saying that you believe that country’s economy is worth investing in, and that it will bring you profit. The forex market is by far the largest and most liquid market in the world. This ensures that you can step in or get out of the market at any time you choose to.

Basic terms:

For the sake of fully understanding forex trading, it is important to take note of these key trading terms:

Exchange Rate: This is the ratio of one currency valued against another currency. The exchange rate tells you how many units of the other currency you get for yours when selling. And how many units of your currency you will be giving for the other currency.

Pip: Pip means Percentage in Point. It refers to the forex minimum price increase of a trading rate. It is usually in 0.0001.

Position: A position basically means a trade in progress. When a trader is in a long position, it means he has bought currency and is expecting an increased value of it. Once he sells it, trade is said to have been completed and his position then becomes closed.  A short position is when a trader sells his currency, fearing a value decrease. Here, he plans to buy it back at a lower value. The position becomes closed once he has bought back the currency. We can just say that long means buy and short means sell.

Major pairs: This refers to currencies most commonly traded in forex. This may be because of the countries’ stable and profitable economies. They account for about 80% trade in forex. The eight majors are the United States, Eurozone, Japan, Australia, Canada, United Kingdom, Switzerland and New Zealand.

Exotic pairing: This refers to pairing a smaller or developing economy’s currency with a major currency. Exotic pairing can be very volatile, illiquid and risky. This is because of the developing countries’ tendency to have political, social and economic changes without warning.

Cross currency pairing: These are pairs that do not include the US Dollars. By convention, currencies are usually first converted into the US Dollar for sale and then converted again into the desired currency. Thus, cross currency pairing means jumping this process to offer direct exchange. This is more risky than exchanging majors but usually less risky than exotic pairing.

Bid, Ask and Spread: Bid is the price your broker wants to pay for the base currency you are selling while ask or offer price is the price the broker is willing to sell his base currency. The difference in the two prices is called spread. The bid is usually lower than the ask price because of who holds the bargaining power.

Now that you are familiar with the basic terms, here are the important things to note for trading in forex for profit.

  1. The first thing to do is to decide if you want to go long or short (buy or sell currencies). You do not need a lot of capital. An average of $300 is enough to start trading. However, smaller balances may not give enough allowance for bouncing back after a loss (which will happen from time to time) therefore, it’s better to have about three times of that before you dabble into the live market.

2. Find your broker: Choosing a broker is not a small task. A bad broker can live your business unstable and make things very difficult. The broker is like your trade manager who settles your trade disputes. Considering that there are lots of unregulated brokers in the current FX market, you can read broker reviews and visit online forex forums. You should also open a demo account to test your selected broker out first.

DEMO ACCOUNT

A demo account is a trading account that uses monopoly money connected to the live forex trading. Everything happens exactly as it is in the live market except that you are not actually losing or winning real money. It is a free trial class provided by the forex market. You should do this for at least 3 months till you have found and reached profit targets. Don’t be too eager to dive into the trading pool without this step.

3. Pay attention to information: Read books and articles on the forex market. Pay attention to the news of the country whose currency you have invested in. The main factor that affects the rise and fall of a currency are the political and economic decisions the country makes.

Because the Forex market is very large, it is susceptible to lots of rumors. Be careful not to call long or short based on hearsays. Rather, confirm every news you hear before making any decision concerning your assets.

4. Stick to a budget: It is important to know exactly how much you are comfortable with investing. Taking risks is very important in doing business however, know exactly how much you are willing to invest. In other words, be comfortable with your investment. You can write down your budget estimate in a journal and check it up regularly.  

5.Start simple: It is better to start with a single currency pairing when investing. This gives you full space to monitor your investment regularly without complications. However, don’t stay that way for too long. As you gain experience, you can slowly increase your currency pairing (especially in markets that are not too similar). This will reduce the chance of breaking all the eggs in the basket.

6. Reasonable Leverage: Leverage is perhaps the most beautiful thing about forex trading. However, it can turn ugly real fast if not used reasonably. When starting, it is better to utilize a lower leverage. For example, you can use the 10:1 ratio of one standard lot, such that if you have $5000, your position will be $50 000. While the position may look small considering the other options, it also ensures lower loss in cases of bad investments.

7. Money Management Classes: This is very important if you are going into forex big time. By taking money management classes, you learn how to minimize losses, when to take risks and when and where to invest more. You will also be able to track your money and analyse the available forex charts and statistics properly. There are many of such classes available online.

8. Keep Track: One of the secrets to business is having an alternative move. The forex market is very volatile and a day, or as little as ten minutes, can make all the change. In order to avoid a situation that renders you imbalanced, it is better to have an alternative move. You can keep a journal for the sake of predicting market changes and determining how to handle them. 

9. Patience and Discipline: Patience is more than a virtue for forex trading, it is a tool of the trade. Do not expect overnight wealth nor should you lose enthusiasm over a few losses. Check on your investment daily and seek information.

The Forex trading market is not singly controlled by any one bank, institution, or the government of any country. There is simply no monopoly of the market. While it may take time to make millions of profit, the open competition in the forex trade ensures that even the small fish can become a big shark in the sea.

If you follow these steps diligently and abide by the Forex trading ground rules, you will be part of the world-class market and soon find yourself making a huge, unexpected profit from trading forex.

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