FOREX : HOW TO MAKE MONEY ON FOREX TRADING ?
Forex market is just like any other market where instead of foods and goods people trade currencies.
What Is Forex ?
Like any other market, the forex market is where people trade currencies instead of foods and goods.
A Forex broker is what?
Forex trading is open to everyone, but it can only be accessed by brokers. In essence, a broker is your “hands” on the Forex market, giving you access to the market.
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A currency pair is what?
The euro and the U.S. dollar (EUR/USD), for instance, are two currencies that are traded in pairs on the open market. Want to exchange dollars for euros? Click “Buy” to open the EUR/USD trading window. Want to exchange euros for dollars? choose “Sell” and follow suit. Just keep in mind that your action always refers to the first currency of the pair to understand how to do it.
How can I profit from Forex?
People would purchase a currency pair at a lower price and sell it at a higher price; the difference between the Buy and Sell prices would be their profit. Your trades generate a small commission for the broker known as spread.
Let’s assume that you have $100 on your trading account and want to trade EUR/USD. Its exchange rate is 1.25, which means that for 1 euro you get 1.25 US dollars. Exchange rate is like a price tag at the grocery store – the only difference is that the price tags on Forex are changing all the time.
Then, you make a forecast – for example, you believe that Euro will rise versus the US Dollar.
Next, you buy 80 euros for your $100 and wait for the exchange rate to change.
Let’s imagine it rose from 1.25 to 1.35 – it is a profitable situation for you, so you can close the trade at this point. Now, you can exchange your 80 euros back to 108 dollars, and get your profit of $8.
If you think this amount of money isn’t worth bothering, there’s great news: your broker can help you make much more money with a special tool called leverage. Leverage is funds you borrow from your broker to multiply your deposit.
For example, if you used the leverage of 1:3000 at FBS for a similar trade from the previous example, you would get $2400 with just one trade. So, you invest $100 and trade $300 000! Not bad, right?
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How to make forecasts?
The last question is: how do traders know what currency pairs to trade and when to buy or sell them?
Currency rate depends on its supply and demand, which may change depending on the economic situation of the country (GDP, inflation, the labor market situation, etc.). This is why political, economic and social phenomena that influence local economy also influence currency rates. Learning HOW these factors influence profitability is the key to Forex trading.
There are 2 major tools that indicate the best moment to buy or sell.
Fundamental analysis
It is all about following economic news in different countries.
For example: you see that Canadian unemployment rate declined, which means that the CAD will rise. Sell USD/CAD and just wait!
A thing like that happened on January 5th, 2018 – Canadian unemployment rate fell, and USD fell to CAD from 1.250 to 1.236. Trading $100 with 1:3000 leverage, a trader could have made a profit of $3398.
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Graphic analysis
You can use currency rate charts to make forecasts – the pattern on the graph can tell you what to do. Let’s review the simplest and most popular “Head and Shoulders” pattern.
It consists of three peaks that make a “head” and two “shoulders”.
When all three peaks are formed, draw a neckline through the lows that were formed by all three peaks. After that, measure a distance from the “head” peak to the neckline. It is an approximate distance that the pair will go down from the neckline. The “Head and Shoulders” pattern is a strong signal to sell.
Luckily, you don’t need to have a degree in finance to master it! FBS broker has an exceptional section of educational and analytical materials explaining how to act when prices go up or down in simple terms.
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