How To Earn Money In Forex Trading – Many people believe that you can make money in Forex trading by buying currency pairs and selling them for a higher price. In fact, this is just one way you can make money trading Forex: there are many other options, and we’ll discuss them in this article.
In addition to trading currency pairs directly, you can also trade instruments related to currencies or currency pairs, such as CFDs, options or binary options.
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Perhaps you have noticed that most brokers offer some level of leverage to your trades. Depending on various factors, they can give you leverage of 1:30, 1:50, 1:100 etc. While this kind of leverage isn’t exactly a way to make money, it can help you increase your profits – or, unfortunately, potentially incur losses if used incorrectly.
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Thanks to leverage, traders can make satisfactory profits even with only £100 of trading capital. Assuming no leverage, you have £100 to trade. If the price moves 3% in your favor, you will make a profit of £3. However, if you choose a broker that offers 1:50 leverage, you will open a position worth £5,000, and a 3% move in your favor will bring you £150.
However, do not forget that when using leverage (trading on margin), you can increase your profits, but you can still lose more money than your initial deposit.
“Trading” usually means buying at a lower price and selling at a higher price, so the difference between the bid and ask price is your profit. When this concept is applied to trading pairs, you can say that you have a long position.
There is another concept of “short selling”, which is when you go short. This is when you can sell something for a high price and buy it for a low price later. So the profit here will be the difference between the selling price and the buying price.
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To see how this works, imagine you’re in a coffee shop one morning and someone wants to buy your laptop for £800 because their own computer is broken and they need one urgently. You agree to sell it. After a few hours, they no longer need a laptop, but can’t take it with them – and this is where you have the opportunity to close your position. You offer to buy the laptop back for £750 and make a profit of £50 (£800 minus £750).
While this example is simple, the concept works in much the same way in the forex market. Basically, you make a profit by selling a pair in the expectation that the price will drop and you can later buy the same pair at a lower price.
Remember, when trading currencies, you can develop many strategies that can make you profitable. One way to trade a currency pair directly is to open a position in the same direction as the trend (known as a trend trade), meaning that during a trend you will buy the currency pair and during a downtrend you will sell or go short the currency pair.
Another way to make money from the forex market is by trading contracts for difference, or CFDs. CFDs represent derivative trading instruments and they are available on different types of markets such as stocks, indices, commodities and currencies.
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If you decide to trade CFDs, you will be able to predict the movement of the underlying asset, but remember that with CFDs, you do not own the currency pair in which you hold a position. By trading CFDs, you can trade on price differences and profit accordingly.
Let’s look at an everyday example. Your friend wants to sell his motorcycle for €500 today, but you believe he can fetch more tomorrow, so you tell him to wait. Because of the possible uncertainty, you sign a contract with him, and if the price is less than 500 EUR, you will pay him the difference – and if the price is higher than 500 EUR, you will receive the difference (less than a fraction) fee, because after all You do not own the property in question).
So you go to the market the next day and your friend bids €525 on his motorcycle. When you correctly predict the price movement, you yourself will receive a profit of 22 euros, and the remaining 3 euros will be your friend’s fee.
By trading Forex CFDs, you will profit in the same way, the difference is that you will be trading CFDs on margin. Margin trading means that you pay a certain percentage of the contract value (the broker gives the rest).
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When trading CFDs on the underlying asset, you can take the same positions as you would for an outright trading pair. Therefore, if you expect the price to rise, you will open a long position (buy), or if you expect the value of the currency pair to fall, you will open a short position (sell).
Forex options are another derivative instrument through which you can make money in the foreign exchange market. Unlike CFDs, the option seller must deliver the underlying asset to the option holder if the holder exercises the option.
This means that you as the holder do not have any obligation to buy or sell the currency pair, but the seller is obliged to deliver if you decide to do so. Therefore, there are two types of options: calls and puts. If you expect the price to rise, you will use a call option and lock in that price. You can buy a pair in the future. If you expect the price to fall, you will want to own a put option. Because you will determine the price at which you will be able to sell.
For example, you can set a bid price of 1.10 for EUR/USD in anticipation of a price increase. It turns out you were right and the price actually went up to 1.20. Since the option gives you the right to buy the EUR/USD currency pair at 1.10, you decide to activate it and buy the currency pair at the agreed price. After buying EUR/USD at 1.10, you can sell it on the Forex market at 1.20 and cash out the difference immediately.
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If for some reason the price moves against you and goes down to 1.08, then you keep the expiry option. It should be noted that no matter whether you activate the option or not, you need to pay a certain premium to the option seller, and this premium is the maximum loss you can bear.
Binary options are another way you can make money with Forex. They are popular with traders for their simplicity and over 70% probability of profit, which is why they are also known as options with fixed returns.
By trading binary options, you can predict the direction of price movement regardless of the magnitude of the high/low movement of the binary options pattern.
Don’t forget that forex trading comes with risks, which means you should be prepared before you start trading. You need to understand how pairing works and what factors affect its value.
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Also, it is good to be familiar with technical analysis indicators and how to use them to your advantage. Also, try to establish good money management so you don’t risk all your money at the same time.
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We deposit $300 in our account, with a leverage of 1:100, we can trade $30,000 or what they say is 0.3 lots.
Let’s say the next day on October 18th at 20:00 PM the GBP depreciates and we close the position at 1.5703 and gain 126 pips. Our profit is
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