Tips to Make More Money when Doing Forex Trading
If you want to make money from your forex trading activities, you need to be able to take advantage of exchange rate fluctuations in a profitable manner. Unfortunately, this is often easier said than done, especially with the number of traders who continually suffer from trading losses. It is said that only 5% of forex traders actually make money from their investments. If you want to be among the privileged few, there are a few essential things you need to remember when participating in the speculative trade that is forex trading.
How one makes money through forex trading
In forex trading, investors are able to profit from the simultaneous buying and selling of currencies. Forex trading is always done through currency pairs, such as the euro-US dollar pair or the US dollar-Japanese yen pair. Since exchange rates between the currencies are perpetually fluctuating, a skilled trader should be able to predict the trend in these fluctuations, with the goal of making a profit. Simply put, you trade one currency for another, predicting an increase in the value of the currency you bought compared to the one you actually traded away.
Supposing the EURUSD exchange rate is at 1.18 and you buy 10,000 euros. This means you have bought 10,000 euros at a price of 11,800 US dollars. A week later, if the exchange rate shifts to 1.2500, you would want to trade your 10,000 euros back into US dollars, which total to 12,500. This means you have earned a profit of 700 US dollars.
Before you can make money from forex trading, you need to be able to read a foreign exchange quote. This is one of the basic yet more important steps involved in trading. When trading, the currencies are quoted in pairs, which involves the base currency and the counter or quote currency. Given the example above, which is the EURUSD, the currency listed first or EUR is the base currency. The USD is the counter or quote currency. In the equation, EURUSD = 1.18, you will need to pay 1.18 US dollars to buy 1 Euro.
When you buy this currency pair, you do so with the speculation that the base currency will go up, in relation to the quote currency. If you expect the base currency to go down or to depreciate, you will sell the currency pair.
Tips to make more money
If you want to make more money from forex trading, you need to at least have a background in foreign exchange and considerable experience in the trading process. If there are aspects of forex trading that seem vague to you, doing further research can help you get a better grip on the trade. You can also try paper trading or simulated trading first before actually pay real money.
Risk management is very important when it comes to making money out of forex trading. If you don’t know how to control your capacity for risk in a speculative business such as forex trading, there will be a greater chance for losses than profits. As a trader, you need to know when to trade and when not to, and you should also know when to exit the market. This is where discipline plays an important part. You don’t have to spend an entire day gawking at your PC and monitoring the charts. Once you have achieved your set objectives, feel free to leave the market for a while.
According to forex trading experts, making trades daily does not always lead to high profits. What is more important is for you to find a trading strategy, according to your capabilities and level of experience. Timing plays a crucial role in forex trading, so you have to pace your investments correctly. Looking into the market and your own capacity for risk is important if you plan on making profits from this form of trading.
Although the foreign exchange market is open 24 hours daily, you also need to determine which trading schedule is most appropriate for your lifestyle. If you have a full-time job or daytime classes, getting up during the wee hours of the morning to trade in the European market and monitor the charts may require too much effort. However, there are many people who are adept at trading even during the ungodly hours. The key here is to find a working schedule that suits you best.
Forex trading myths to avoid
There are a few misconceptions that some investors tend to cling to when attempting to trade in the foreign exchange market. Many people assume that getting any type of trading software will automatically bring in the profits without any need for market assessment or trading background. While these software products are created to help you make the most out of forex trading, you still need to obtain enough information and training on your own. You can’t count on a single piece of software to help you reel in the profits all the time, if you have mediocre trading skills and know-how.
Again, one of the biggest myths about forex trading is that traders should always be involved in trading, every single day. You can’t expect big trends to occur every waking day in the market, however. These trends take place only a few times each year, depending on the currency pair. If you stay in the market almost all the time, you are sure to take home more losses than wins. The frequency of trade is not as important as how right your speculations are when you actually do trade.
As long as you know how to predict favorable exchange rate fluctuations and act on them at the right time, you can always make more money from forex trading. Timing and discipline are also crucial factors any trader should learn to master. Finding a reliable brokerage system and checking out those online tools can be highly valuable in this trade. If you want to be truly successful in forex trading, you also need to have the right education, discipline, and useful risk management tactics.