In today’s blog, we take a look at some of the basics of the foreign currencies forex market, how to earn money trading, as well as the importance of education in becoming a successful trader. Hopefully, this blog will provide you with insights about forex trading and some practical steps on how to earn in forex. The goal of any trader is, of course, to make a profit. If you are looking to learn how to make money in forex, you have taken an important first step by reading this blog.
Did you know that the forex market is the largest trading market in the world? The daily volume of forex trades is approximately $6.6 trillion, compared to around $200 billion each day for the global equity (stock) markets. Although the forex market is much bigger than the equity markets, forex has a much smaller scope. The U.S. dollar accounts for 88% of all forex trades, and there are just eight major currencies in the forex market. Clearly, it is much easier for a trader to monitor the forex market than the equity markets, which are comprised of thousands of stocks which are listed on stock markets all over the world.
How to Trade Currency
Many of us are familiar with trading stocks, but how exactly does one trade currencies? The vast majority of countries around the world have their own currencies. We are all familiar with the U.S. dollar, the euro or the British pound. In the forex market, traders buy and sell currency pairs; a currency cannot be traded ‘by itself’. A currency pair can also be defined as the rate of exchange between two currencies.
Although there are over 160 currencies worldwide, there are eight currencies which account for some 85% of all forex trading. This means that there are seven currency pairs, which are known as the major pairs, or majors. The most heavily traded majors (in order) are the following:
- EUR/USD (Euro/US dollar)
- USD/JPY (US dollar/Japanese yen)
- GBP/USD (British pound/US dollar)
So how do we trade a currency pair? Let’s take a look at the first pair, EUR/USD:
Suppose we check the internet and see that EUR/USD is currently trading at 1.1300. This means that 1 euro is trading at 1.13 U.S. dollars, so in order to purchase 1 euro, you would have to pay 1.13 US dollars. If the pair climbs, for example to 1.1350 or 1.1420, this means that the euro has strengthened against the dollar. Conversely, if the pair has dropped, say to 1.1230 or 1.1020, this means that the euro has weakened against the dollar.
Just like any stock, a currency pair can (and will) move upwards or downwards. In fact, it’s helpful to think of currency as that country’s “national stock”. Generally speaking, if a country’s economy is doing well, this will result in a strong currency. Economic indicators such as unemployment numbers or GDP (gross domestic product) can have a strong impact on the currency. For example, if a British employment report was better than expected, this would be a positive development for the pound and would likely send GBP/USD upwards.
Like the stock markets, currency rates are constantly fluctuating. Traders are always looking to make a profit by ‘buying low and selling high’ – in the case of forex, this means buying a currency pair at a low rate and then selling it a higher rate.
We mentioned earlier that currencies are constantly fluctuating. Since the actual movement of currencies is usually very small, most pairs are quoted to the fourth decimal place, which is called a pip. In forex trading, the basic unit of measure is a pip.
If EUR/USD was trading at 1.1320 and rose to 1.1325, it has increased by 5 pips. Although a pip is a very small number, a movement of even one pip can mean significant profit or loss for a trader, because forex trades are usually heavily leveraged (we will explain leverage shortly).
Let’s take a look at a simple example of how to make money trading currency, this time using GBP/USD:
Suppose GBP/USD is trading at 1.2500. If you purchase 100,000 British pounds, this is equivalent to $125,000. If later in the day GBP/USD rose to 1.2560, GBP/USD has increased by 60 pips – the value of your U.S. dollars has risen to $125,600, which leaves you with a tidy profit of $600. This simple example illustrates how to make money trading forex.
When you purchase 100,000 British pounds with U.S. dollars in the above example, you aren’t expected to put $125,000 in your trading account. Rather, traders use leverage, which allows a trader to open a position which is much larger than the amount of capital which they need to put down. If a broker is providing you with 100:1 leverage, this means that you can control a position of 100,000 pounds with only 1,000 pounds in capital. While leverage allows a trader to control very large positions, keep in mind that leverage carries with it significant risk, so it is essential to always “handle leverage with care”. A key component of how to make money trading forex is making use of leverage in a responsible and disciplined manner.
How much money do you need to start trading forex?
Some brokers advertise that you can start trading forex with as little as $100, which may sound attractive. However, this is unlikely to yield any profit. If you are working with 100:1 leverage, you will need to put down $1 to trade. Even if you win a few trades, the profit will be miniscule. The other option is to risk a large portion of your capital in order to trade. This is more than likely a recipe to saying goodbye to your capital. A more effective strategy for how to earn money from forex is to start with a sum of between $1000 and $5000, but risking no more than 1% to 3% on a single trade. If you trade in this manner, you are protecting your capital and are on the right path on how to make money trading forex.
How much do forex traders make a day?
There is no accurate way to answer this question, as traders are not about to disclose how much money they are making. Also, the amounts that traders make will vary greatly, depending on the trading method they are using and the amount of capital they have invested. For example, a trader who has put down $30,000 in the capital has the potential of earning larger profits than a trader who has only put down $5,000. There will always be stories of traders who made a fortune in trading (forex or otherwise), but a word to the wise would be as follows – when trying to find a successful method of how to make money trading forex, choose the “tortoise over the hare approach” – focus on developing a trading strategy that proves itself by making modest profits, rather than taking huge gambles in order to rake in a large profit.
Can you get rich by trading forex?
Many of us may have heard or read of someone who claims to have “hit the jackpot” on the stock market or by trading a currency which moved in the right direction. This may be a stroke of good fortune, but it should never be confused with a strategy for trading forex! If someone is looking for a way to make money in forex fast, it is more than likely that he will lose his capital in a hurry.
Forex trading, like other types of market trading, requires discipline and strategy. A healthy mindset for a trader is to view forex trading as a skill which takes time to learn and master. Like any other occupation or hobby, becoming successful takes an investment of effort and time. In order to learn effective techniques of how to make money in forex, one must be ready to work hard and demonstrate a willingness to practice in order to improve one’s trading skills.
Watch this video: The Fundamentals of forex(07mins 19secs)
Many traders rush into the forex arena with little or no preparation, confident that they know how to make money trading currency. However, these individuals have a lack of knowledge about the forex market and have failed to prepare a trading strategy. More often than not, these traders are left disappointed, after seeing their capital quickly disappear. A solid understanding of the forex market is essential to becoming a successful trader – this point cannot be overemphasized. In order to learn how to trade currency and make money, every trader needs discipline and a trading strategy that fits his or her needs and goals.
I hope you have found this blog insightful. If you feel that forex trading may be for you and that you are reading to learn how to make money trading forex, you will find that the Platinum Trading website is an excellent source of information about learning how to trade forex.
There are many forex courses offered on the internet, most of which use seminar and webinar training. In a nutshell, these courses are like sitting in a class, without the commute to school. Looking for something better? Platinum’s online trading academy is the first of its kind in the forex education industry. Our courses provide professional mentors who will guide you on how to develop strategies tailored to your goals and needs. Our goal is simple – to teach every trader how to make money trading forex. With the proper training and knowledge, you too can turn this goal into a reality!
The Platinum Formula:
Perfect Fundamentals + Perfect Technical Analysis + Perfect Logic + Perfect Risk Management = Perfect Trade
The Platinum Way
At Platinum Trading Academy, United Kingdom, we teach all individuals from different walks of life to become a full-time trader or create a secondary revenue stream by trading part-time. We trade in an Institutional Way by letting the market come to us and being patient. Using Platinum’s Trading system you can take many Pips out of the market. We can ensure using this style of trading your trading will make a turnaround as you will become much more consistent.
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Hopefully, you have enjoyed today’s article. Thanks for reading! Have a fantastic day!
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