How to make money trading Forex?

Forex, also known as currency trading, is a global market where currencies of different countries are exchanged. Trillions of dollars worth of transactions are made here daily, involving large players (banks and companies) and private traders. The essence is simple – you buy one currency while selling another. Your goal is to guess how the currency pair’s exchange rate will change and make money on this difference.

From this article, you will learn how the international currency market works. Also, Gofaizen & Sherle experts will share valuable tips to help you take the first steps toward success in Forex.

What is the Forex?

Imagine a global market where the currencies of different countries are continuously exchanged. This is Forex – a decentralized financial system where banks, large companies, and private traders speculate on currency rates.

More and more people see Forex not only as a fascinating occupation but also as a promising source of income. Free schedule, possibility to work from anywhere in the world, no ceiling on earnings, and constant self-improvement – these are just some of the reasons why the ranks of traders are steadily growing. Forex beckons those who crave financial independence and are ready to take responsibility for their future.

Undoubtedly, the Forex market beckons with its freedom and possibility to achieve financial success. But you should not give in to illusions. Trading on the currency market is not a lottery, but a painstaking labor that requires knowledge, experience, and the ability to soberly assess the risks.

What is important to remember:

• Forex is not a guaranteed profit. Do not fall for the promises of fabulous earnings. Success in this business depends on you, your knowledge, discipline, and ability to analyze the market;
• risks are an integral part of trading. Even experienced traders are not immune to losses;
• constant learning is the key to success. The Forex market is constantly changing, so it is important to constantly learn new strategies, monitor news, and improve your skills.

Join the Forex world consciously, and it can become for you the key to new heights of financial prosperity!

Simple Tips for Making Money Trading Forex

First of all, let us try to explain in simple words the basic concepts and principles of this global market:

Learn the Basic Forex Trading Terms

Forex trading is similar to other transactions where you purchase a certain asset for a certain currency. Each currency has a unique code that allows traders to easily identify it as part of a forex pair.

What is a forex pair?

In forex, all trades are made using currency pairs. A forex pair is a combination of two different currencies that are traded against each other. There are hundreds of such pairs available for traders to choose from. Among the most popular are:

• EUR/USD – Euro against the US dollar – a Forex classic;
• USD/JPY – US dollar against the Japanese yen – a pair with high volatility;
• GBP/USD – British pound against the US dollar – reflects the state of the two largest economies.

Trading occurs by buying one currency for another in the hope that the exchange rate between them will change.

What are exchange rate, base, and quoted currencies?

Every time you have an active position in forex trading, you exchange one currency for another.

The exchange rate is the price of one currency expressed in another currency.

The base currency is the first currency in the pair against which the exchange rate is expressed. It is the basis for conducting transactions.

The quoted currency is the second currency in the pair in which the exchange rate is expressed. It shows how many units of the quoted currency are needed to buy one unit of the base currency.

What is a pip?

A pip is the minimum change in the exchange rate of a currency pair. It is usually equal to one pip to the fourth decimal place.

Pips are the basis of profit or loss in Forex trading. The more pips you can “catch” in one trade, the higher your potential profit will be.

What is a lot in Forex?

Imagine that you are buying not just one apple, but a whole box. In the world of Forex, currencies are also traded not piece by piece, but in lots.

A lot is a standardized batch of currency used in transactions. Why is this necessary?

• for convenience – lots simplify calculations and make trading more transparent;
• for liquidity – the more lots available on the market, the easier it is to find a buyer or seller.

Given that price changes in the Forex market are usually small, lots can be significant in size. For example, a standard lot is 100,000 units of the base currency. This means that if you buy a GBP/USD lot, you are buying 100,000 British pounds and selling 100,000 US dollars at the same time.

What it means to buy or sell a currency in Forex?

When you buy a currency pair, you buy the base currency and sell the quote currency. This is beneficial when you expect the base currency to strengthen, as you will be able to sell it at a higher price after buying it. Such a transaction is called a “long position”.

Selling a currency pair means selling the base currency and buying the quote currency. This is beneficial when the price of the base currency is expected to fall, as you will be able to buy it back at a lower price after the sale. This is called a “short position”.

What is Bid, Ask and Spread?

In the Forex market, each quote is quoted at two prices: Bid and Ask.

Bid, or ask price, is the price at which your broker is willing to buy the base currency in exchange for the quote currency. It is the best available price to sell in the market.

Ask, or bid price is the price at which your broker will sell the base currency in exchange for the quote currency. This is the best available price to buy in the market.

Usually, the asking price is lower than the bid price.

Spread is the difference between the buy and sell prices in the forex market. For example, in the GBP/USD pair, the buy price might be 1.3326 and the sell price might be 1.3322. For your position to be profitable, the market price must either exceed the buy price or fall below the sell price, depending on whether you have opened a long or short position.

What is margin and leverage in Forex trading?

The margin in Forex trading is the amount of money a trader must deposit with a broker to open and maintain a position in the market. It represents collateral that assures the broker that the trader has sufficient funds to cover potential trading losses.

Leverage (or simply leverage) is a financial mechanism that allows a trader to control a position in the market that exceeds his available funds. It is expressed as a ratio between the amount of collateral and the size of the trading position.

Reputable Forex Broker

A forex broker is an intermediary that provides traders with access to the international forex currency market. It acts as a link between the trader and the market by providing trading platforms, price information, and execution of trades.

The broker’s commission is based on the difference between the buy and sell prices, which are based on the current market value. These prices already include transaction costs, so when you trade through a forex broker you are buying currency slightly above the market price when buying and slightly below when selling. This is the main disadvantage of working with a broker.

Nevertheless, finding the right broker makes sense, especially for beginners. It will provide access to the market and the necessary tools. Advantages include the ability to choose from various trading platforms, an extensive selection of currency pairs and other financial instruments, as well as access to analytical tools and training materials. However, it is important to choose a reliable and licensed broker to avoid fraud and unexpected withdrawal problems.

Learn Strategies

There are many trading strategies in the Forex market. The most popular strategies include:

Scalping

This is a short-term strategy in which a trader opens and closes positions within minutes or even seconds to capture small price changes. It requires quick reactions and intensive market monitoring.

Day Trading

Traders using this strategy open and close positions within a single trading day. They aim to capitalize on price changes during the day.

Support and Resistance

This strategy is based on the idea that price tends to bounce off of certain support and resistance levels. Traders use these levels to determine entry and exit points for trades.

Trend Trading

Traders following this strategy look for consistent trends in the market and open positions in the direction of the trend, expecting to profit from the continued price movement.

News Trading

This strategy is based on analyzing economic news and events that may affect the market. Traders open positions before or after the publication of important information, expecting rapid price changes.

The choice of trading strategy depends on your preferences, the time available for trading, and your level of experience. It is important to experiment with different strategies to find the one that best suits your goals and trading style.

Start With a Demo Account

Before you start trading forex, it is recommended that you take advantage of educational resources to strengthen your knowledge and skills. One useful tool for this is a trading simulator, such as a demo account, to help you familiarize yourself with the trading platform you plan to use.

A demo account is an environment that simulates real market conditions provided by your trading provider. Its purpose is to allow you to immerse yourself in the trading process without risking real funds. It allows you to understand how different instruments and markets work, develop your strategy, and confidently make trades without the risk of losing real money.

Experienced traders also use demo accounts to:

• test new strategies;
• study new instruments;
• evaluate the prospects of new ideas.

When you feel confident and ready for real trading, you can open a real account on the trading platform of your choice.

Begin With a Small Investment

Start by trading small amounts to evaluate your skills and strategies.

First, it minimizes financial risks, especially for beginners. Small investments also allow you to gain experience and training without serious financial consequences. You can gradually increase the volume of your trades as you gain experience and confidence.

In addition, by starting with a small investment, you can test different trading strategies and techniques to determine what works best for you. This will also help you learn to manage your emotions as there will be small amounts at stake, which reduces stress and allows you to make more rational decisions.

Example of How to Make Money Trading Forex

Let’s take a simple example of how Forex trading works:

Select a Currency Pair

First of all, select a currency pair.

For example, you may decide to trade the EUR/USD currency pair. It is one of the most popular and liquid currency pairs on the Forex market, which means that there is always a large trading volume and tight spreads.

Choose Your Forex Trading Strategy

Let’s assume that you have decided to use a trend trading strategy. This strategy involves buying a currency pair if it is in an uptrend and selling it if it is in a downtrend.

Analyze the Chart and Open a Position

Analyze the chart of the selected currency pair and determine whether the trend is upward, downward, or sideways. Technical indicators will also help you to identify support and resistance levels, as well as potential entry and exit points.

In this example, let’s assume that as a result of analyzing the EUR/USD chart, you notice an uptrend forming. According to your strategy, you decide to open a buy position at the current rate of 1.1500.

Manage Your Risk

To manage risk, traders often use a stop-loss order, which automatically closes a position in a currency pair at the best available market price when the market does not move as you predicted. This allows you to close a trade at a predetermined rate that is worse than the current market rate to minimize losses. In this case, the loss in pips will be determined by the difference between the initial rate level and the level at which the stop loss was triggered.

If you have a long position open, your sell order with a stop-loss should be placed below the current spot rate. If you have a short position, a buy order with a stop loss should be placed above the current spot rate.

It is generally recommended to leave some margin for market movement and not to place stop-loss orders too close to the current rate to avoid stop-loss triggers due to natural market volatility. This will help you avoid losses even if your original trading idea would have ended up being profitable. You should also avoid setting stop losses too far away to avoid excessive losses that may be unsustainable for your budget.

Going back to the example, let’s say you have determined that you are willing to lose no more than 2% of your trading capital in an open trade. So you set your stop loss at 1.1450, which means a potential loss of 50 pips (or $50 for a standard lot of 100,000 units).

Close a Trade

You can close your position manually to lock in profits when you reach the take profit level, or to limit losses if the market moves in the opposite direction to your forecast. Your position can also be automatically closed when a stop order or take profit is activated.

Let’s go back to the example:

Let’s say that after a few days, the EUR/USD price reaches your profit level and you decide to close the trade. The exchange rate reaches 1.1600 and you close your buy position, earning 100 pips (or $1000 with a standard lot). Thus, your profit is $950 after deducting commissions and spread.

This is an example of one successful forex trade. It is important to remember that Forex trading is always associated with risk, and each trade can bring both profit and loss. Therefore, before you start trading, you should study the market and develop a trading strategy. Also, remember that you should not risk money that you cannot afford.

Summary

Forex is the most active financial market in the world, which means constant price changes and new opportunities for traders. However, successful forex trading requires knowledge, skills, and a disciplined approach. It is important to learn the basics of currency trading, including understanding currency pairs, market analysis, and risk management strategies.

Developing a trading plan and following it consistently, as well as having patience and the ability to control emotions can significantly increase the likelihood of successful trading in this dynamic market. Constant monitoring of market conditions and the flexibility to adapt to changes, as well as awareness of global economic events, will help traders make informed decisions and maximize the benefits of their trades.