How to make money from forex trading?

iTo understand the whole concept of making money from forex trading, lets first look at these key words.

Forex – Currency/Money

Trading – Buying and Selling a product with an aim to make a profit.

So forex trading is buying and selling currencies with an aim to make a profit. In simple terms, you make money from forex trading by buying or selling currencies.

so, how do you buy/sell currencies in the forex market to make money?

• First you must own an account where you will deposit the money you intend to trade.
• Choose a broker to trade with since transactions are done over the counter. We will talk more about brokers  in next lessons
• Download a trading platform. You can use an MT4 or MT5 trading platform. It is free online if you were wondering how to get that.

You make money from forex market by buying one currency respectively selling the other. OR you sell currency respectively buying the other. This is because Currencies on the market are quoted and traded in pairs.

For example, the Euro and the U.S. Dollar (EUR/USD), the U.S. dollar and the Yen (USD/JPY).

If for instance you want to buy Euro for Dollars? Open the EUR/USD trade and press “Buy”. Want to sell dollars for Yen? Do the same and choose “Sell”. It’s that simple.  Only that, every time you press buy or sell, you buy/sell the first currency of the pair.

You exchange one currency for another in the expectation that the price will change. This means, one currency rises in price value as the other falls and reverse is true.

You buy a currency once you expect an increase in price value and sell it when you expect a fall in price value of that currency.

Both technical & fundamental strategies to guide you on how to make correct decisions on what trade are covered in in the later lessons. Follow through the lessons and learn more!!

How to read a forex quote?

Because one currency is exchanged for another, they are quoted in a pair to enable transactions to take place.

Let’s look at some of the paired currencies commonly traded in the market.

GBP/USD,EUR/USD,USD/JPY,USD/CAD etc

The first currency in a pair is the base currency and the second currency is the quote/counter currency.

For example, for; GBP/USD, GBP is the base currency in this pair and USD is the counter currency in the above pair.

It is also quoted with the bid and ask price at which you can buy/sell the pair. E.g, EUR/USD at 1.11433; one on the left being the base currency and  on the right being the quote/counter currency.

The base currency is worth one unit and the counter currency is worth the amount that one unit of the base currency can buy.

example on How to make money from forex trading.

You have to buy a currency pair at a lower price and sell it at a higher price, and the difference between the Buy and the Sell price is your income.

For example:

Let’s assume that you have $100 on your trading account and want to trade EUR/USD. Its exchange rate is 1.10, which means that for 1 euro you get 1.10 US dollars.

Then, you make a forecast; for example, you believe that Euro will rise versus the US Dollar.

And then, you buy 20 euros for your $100 and wait for the price to move up/rise

If it rises from 1.10 to 1.50,and you close the trade at this point.  It is a profitable situation for you.  Your profit is{(1.50 – 1.10) * 20}. It is automatically added on your account as soon as you close out your trade. So your new account balance is 108 dollars, with a profit of $8.

No worries about the math above, we shall cover it in later lessons as we discuss more about pips, lots and profit calculations.

In forex trading you determine how much you want to risk on a trade. However, higher profit could some times involve higher risk, so risk management is an important part of trading!

Points to Note

• In order to make money from forex trading, you either buy the base currency respectively selling the counter currency.
• OR sell the base currency respectively buying the counter currency depending on the position you choose to take on each currency in the pair.
• The first currency in a pair is the base currency and the second currency is the quote/counter currency.
• The base currency is the basis for a buy or a sell.
• For example if you buy the EUR/USD, that simply means that you are buying the EUR while selling the USD simultaneously.
• You believe that the EUR is appreciating/adding value relative to the USD and if it moves as you have predicted, you are making a profit.
• On a sell of a EUR/USD, the EUR is losing  value relative to the USD, and if it goes to your predicted direction you make a profit.
• When you buy, we say you are going long and when you sell we say you are going short.
• In forex trading you make money by buying or selling a currency pair and it goes as predicted.