How to make money by trading currencies - Forex

Forex stands for foreign exchange and it is the world’s most traded currency market with a volume of more than 3 trillion US dollars per day. It is categorised by high liquidity and volatility and with such a huge volume of currencies traded it gives ample oppotunities to make good money online. But before we talk more about forex trading you need to know the fact “around 90% of the forex traders lose their money”, why? We will talk about that later. So keep your sentiments in control before you think too jump in this market.

Get a free 30 days trial of the most reliable stock trading signals with 80% winning trades.

What is Foreign Exchange about and how is it traded?

Currencies are always traded in pairs e.g EURUSD, EURGBP,USDCHF. This means if you are buying one currency at the same time you are selling the other.For example if you buy 1000 units of the pair EURUSD an the price of 1.6000, that means you bought 1000 EUR and sold 1000 USD where each EUR was exchanged for 1.6000 USD. Now lets assume after 7 days the price of EUR with respect to USD increases to 1.7000 and then you sell 1000 units of the pair EURUSD , that means you bought USD and sold EUR where one EUR was exchanged for 1.7000 USD . So your total profit amounts to (1.7000-1.6000)*1000=100 USD. This is how forex is traded and made profit from.

Now you would think that you will have to risk a 1000 EUR to make a small profit of 100 in 7 days?
No, this is where the term “Leverage” comes into play.Almost all brokers give you the benefit of leverage which means you can trade a very big amount of currency with little investment. For example a broker gives you a leverage of 100 , that means if you invest USD 100 you can trade currencies worth 100*100=10000. Most brokers have leverages ranging from 100 to 500. Currencies in forex market are traded in lots. 1 lot generally means means 100000 units of the base currency. The base currency is the first currency denoted in the pair of currency traded. For example you trade EURUSd , then EUR is the base currency.

Now if you are thinking to dive into forex market then stop because it require a lots and lots of knowledge to make profit in foreign exchange despite the fact that that it seems to be easy to make money this way. As i earlier quoted that 90% of the traders lose the money in foreign exchange. This is because forex has a typical learning curve. it requires to get better of emotions and the most important aspect of trading currencies is learning money management. Good money management alone can make you a good forex trader. But this art is not easy to master.

The best resources known to me to learn forex trading are BabyPips.com and ForexFactory. At forex factory there are some great traders whom you can follow and gain knowledge from.Also traing of forex never completes , there is also something to learn. Anyways even after you think that you are ready to jump in the market and you think you have learnt enough , you should first trade demo at least for 2 months until you gain confidence and remember keep learning.

One good place is the eToro website where you will get $2,000 of virtual money to test your skills. This is not a game, however. This is your chance to see whether or not you have what it takes to be an online Forex trading champion. Treat all your trades with virtual money as if it was real money, and once you consistently start to make a profit, you'll know it's time to move on the real thing.

Another good virtual trading platform can be found at How The Market Works. This site is fully geared up to trading virtually, and it is not just for Forex trading. You can try your hand at other markets as well. It's lots of fun too, but remember, you are practicing for the real thing, and that can be even more fun.

Happy money training