Many people are quite intimidated in placing a trade in the foreign exchange market, more commonly known as forex. However, the mechanics of trading forex is relatively quite simple and very much similar to other financial markets such as the stock market. In this case, it is safe to say that there is a significant opportunity for you to make money from trading forex, much like you would in stock market trading.
How much money can you make?
Well, that depends on your trading strategy as well as your understanding of the market. If you are successful, you may even hit a 55% win rate but on average, you can expect a monthly return of about 5% to 15%. Just keep in mind that the opportunity for you to earn from trading forex depends on a decent trading strategy that you have carefully studied based on the trends and data that you have. In line with this, below are the steps on how you will be able to earn from trading forex.
Steps to Earn from Trading Forex
Understand the Basic Jargon
One of the primary things that you need to do for you to be able to start earning in trading forex is to familiarize yourself with the basic jargon used in the market. In this case, you need to know and understand what a base and quote currency is and the concept behind long and short. You also need to know what expert traders refer to when they say flat or square and what they mean with the terms bid, ask, and spread.
In this case, what you can do is exert the extra effort to research and do your homework. It is only after you understand the basic jargon you will be able to come up with a viable trading strategy that you can use to earn money. Also, you will be in a better position to avoid losing money.
Find a Reputable Broker
Compared to the stock market, forex has much less oversight, which makes it possible that you end up engaging with the first broker that you find just to make a trade. Keep in mind that for you to be able to enjoy the profits that you can make with trading forex, you need to leverage the platforms of trusted brokers to perform the trade. When you search online sources, you may come across various reviews on sites such as www.trusted-broker-reviews.com. These reviews will be able to help you have a good insight on what you need to look for when it comes to choosing your broker. For your safety and security though, make sure to seek out a broker that is certified or licensed by the standard regulating bodies in your area.
Practice with a Demo Account
Check out whether the platform of the broker you end up with offers a certain demo account that you can use to practice trading before you make an initial deposit. In this way, you will be able to familiarize yourself first on how to navigate the platform and make a trade. Aside from this, you will be able to test your theory or the trading strategy that you came up with based on your research. The great thing about a demo account is that you don’t have to shell out any initial deposit to practice trading and test your strategy.
When you are already comfortable with the trading strategy that you have practiced using your demo account, the next step is to test it on a live platform. This means that you already need to make an initial deposit. Another great thing about trading forex is that you have the opportunity to start small. More often than not, any amount between $500 and $1000 should be sufficient when you are starting.
It is recommended by expert traders that you start small at the beginning particularly because you are still on the phrase of testing the waters and getting accustomed to trading. Rest assured that you can increase the amount you want to trade anytime you wish. Just keep in mind to only invest the amount of money that you can afford to lose as well because while there is a great opportunity to earn in trading forex, there is also a risk involved.
Protect your Trading Account
Once you are already live with your trading account, exert an extra effort to protect it. This means leveraging a strong password to keep your account safe and secure from hackers as well as other people with the intention of taking advantage of others for their gain. It is also a good idea to update your password from time to time as an added security measure.
Aside from this, though, you should also learn how to avoid losing money in trading. In this case, you should take the time to learn about proper money management techniques, as well as getting the perfect timing when it comes to entering a position. It is also integral that you should learn when to accept your losses and move on as necessary. In this case, having a protective stop loss technique proves to be an effective way to ensure that your losses are still within a reasonable range.
Keep a Record of Your Trades
Finally, make it a habit to keep a record of the trades that you made. In this way, you will be able to have a reference or a guide that you can refer to when it comes to which areas you can still improve, as well as which aspects you need to maintain. When you keep a record of your trades, it will also be easier for you to trace your profits, as well as your losses, for you to be able to act accordingly.
Methods to Earn in Forex
There are several ways on how you will be able to earn in forex. You should explore each of these possibilities if you are keen on making a profit from forex. It can be that you garner losses from one method, but your losses can be covered by other means of trading in the market.
Trade Currency Pairs
One of the most common ways of earning in forex is by trading currency pairs. In this way, you can either take a long or a short position. Regardless of the position that you take, the concept is very much similar to trading in the stock market wherein you buy at a low price and sell at a high price. The difference therein is the profit that you get.
Trade Forex CFDs
Another way for you to earn in forex is by trading contracts for difference or CFDs as seasoned traders call it. Apart from currencies, though, these CFDs are also available for other types of markets such as stocks and commodities. Trading CFDs involve speculating the movement of an underlying asset, trading on the difference in the price of the asset. Thus, when it comes to trading CFDs, you don’t own a currency pair where you hold a position.
Trade Forex Options
There is also the opportunity for you to earn in forex by trading options. In this case, you are a holder of a currency pair, but you don’t have any obligation to buy or to sell it. The buying or selling of the currency, in this case, is in the hands of the seller. When it comes to trading options, you can either “call” or “put.” If you expect an increase in price, you need to take the call option to lock the price and buy the currency pair in the future. On the other hand, the put option is utilized if you expect a decrease in price.
Trade Binary Options
You can also earn in forex by trading binary options. This is perhaps one of the simplest ways that you can generate revenue in the forex market, with a chance for you to earn over 70%. In this case, you need to speculate the movement of the currency price where the basic binary options form is either high or low.
Use a Broker’s Leverage
Finally, you can also earn a decent profit in trading forex by using a broker’s leverage. In this case, there is a great chance for you to make a satisfactory profit even if you merely have a hundred dollars available for trading. For instance, if the price moves 2% in your favor, then you make a $2 profit from your $100 trading fund. However, in case you go with a broker that can provide you leverage of 1:10, you will open the position with a value of $1000, which means that the 2% price movement in your favor will bring you $20 in profit.
Trading forex is very much similar to stock market trading, wherein you have a great opportunity to earn. Just remember that with every revenue possibility, there is an equal risk that you need to take. Rest assured that with the proper and carefully planned strategy, you will be able to earn a decent profit from your trades.