You probably heard of Forex trading a lot of times when you’re looking for ways to increase your income. Forex, short for foreign exchange trading, is a process of exchanging one currency to another.
Since modern technology has made it easier for people to travel to different countries or even buy things online from other countries, exchanging their money to different currencies has become common. This is also important for international businesses and even government transactions with other countries. A lot of companies have taken advantage of this by getting into the forex trading market. It is currently the biggest market with over 1..9 quadrillion dollars value and a daily trading volume of $6.6 trillion.
It’s no wonder why Forex trading is one of the sought out markets today. While it may seem intimidating at first to start a business in this field, it is actually easy and simple as long as you know how to make good decisions.
Before we start, there are certain terminologies that you have to understand before going into detail about the Forex trading market. These are a few terminologies that you might encounter while trading.
- Spot Trading – The process of exchanging one currency to another
- Percentage in Point (PIP) – Unit of change in a certain currency equivalent to 0.0001
- Ask Price – The amount the trader will buy
- Bid Price – The amount the trader will sell
- Spread – The PIP difference between the bid price and the ask price
- Leverage – A loan amount that can be used to increase the volume of trades
- Margin – Capital of the Forex broker considered as collateral or deposit when trading
- Currency Pair – The two currencies you are trading with each other
- Long Trade – Buying a currency that you think will increase in value
- Short Trade – Selling a currency that you think will decrease in value
Steps For Forex Trading
There are two ways to earn money in Forex trading. The first one is to trading is selling the money you have for a higher amount than you bought it. The second one is to trade the currency you have before it depreciates in value. To achieve this, you have to do extensive research in order to successfully earn money in Forex trading.
There are a lot of ways and strategies to have an income but here are a few of the basic steps in order to get started.
1. Research Brokers
A broker is an entity that allows you to trade in the forex market. They allow you to control large sums of money through leveraging without having to get the whole amount. You can purchase a currency pair from the broker so that you can start trading.
You have to check different brokers to see what fits your suits and needs the best. If you don’t have a lot of starting capital, you should look for brokers with no or little minimum account money in your account. You also have to look for brokers that have small transaction fees so you will not have to pay a lot of money for every transaction.
Also Read: Top 10 Best Forex Brokers in 2020
2. Checking the Platforms
Since brokers also hold your money that you use for trading, you should also look for a Forex broker that will not allow you to easily withdraw the money without much hassle. Customer service is also necessary since you want a broker that can swiftly fix any problems you might encounter.
Lastly, since you will be using your broker’s platform, you have to look for a platform that is easy to use and also stable. You can research your choice of brokers about their platforms to see what’s popular for other Forex traders.
It’s advisable to stick with the broker you started with. However, if you want to switch brokers, because of different reasons such as lower fees or better offers, then you can easily switch to another one you prefer.
3. Buying a Currency Pair
There’s a lot of research involved in Forex trading. While it is true that you cannot accurately predict the market, you can still have a good idea on where the market is going.
For beginners, you can start with a currency pair and study the markets involved. You can start with the currency of your own country and pair it with a popular currency such as the U.S. Dollar, Euro, and Japanese Yen.
4. Design an Entry Strategy
You must also have a plan or set of guidelines on when to buy currency pairs. For example, currency pairs that do not change much a lot of times will not yield high income. But the ones who change often can give you enough money. However, you can easily lose a lot of money in a volatile market.
5. Studying The Market
The more you trade, the more you’ll learn about the markets. It’s also highly advisable to watch the daily forex news and follow the government’s plans and movements so you can make your predictions more accurate.
6. Waiting For Increase In Value
To avoid a potential loss, you have to develop your own strategy on when to buy, trade, or keep your stocks. You have to anticipate risks in trading. Not all of your hypotheses will be accurate and there are a lot of unforeseen events that can crash a market. While you are trading, you should develop an expert sense of whether it’s good to hold your stocks and wait for an increase of spread or sell the currency pair before it depreciates.
7. Designing Exit Strategy
An exit strategy is needed when you are trading, so you don’t have to lose a lot of money when you are trading. Setting a percentage of depreciation value so you know when to withdraw is one of the best exit strategies. It is up to you how much loss you can handle and risk.
8. Long Trade
This is the basic method of earning money in Forex. If your currency pair appreciates in value, then you earned money that you can withdraw as an income. You can keep waiting until it peaks. A slight depreciation of value is normal since a lot of factors affect the Forex trade so do not immediately trade currencies when it does.
9. Short Trade
While you can get a lot of money through long trade, you should not hold on to currency pairs that might result to a loss. You should have an entry and exit strategy so you will not lose your money from trading.
Once you are satisfied with the amount of money you earned, you can easily withdraw the amount and trade again. The more you know about the trading system, the easier it will be to handle more currency pairs to maximize your income.
Also Read: Best Forex Broker for Withdrawal
Forex trading is one of the best ways to earn money easily without leaving your home. If you have a good intuition and you follow the worldwide news, then it is a good idea to trade in the Forex market.
Developing risk management and strategic plans are the key to a higher income on trading. It can be scary for beginners at first, so we advise that you trade smaller amounts on Forex until you are confident that you can become one of the top traders.