How To Earn Money In Forex

How To Earn Money In Forex – Many people think that you can only make money in forex trading by buying pairs and selling them at a higher price. The truth is that this is only one way to use forex trading to make money: there are many other options and we will talk about them in this article.

Besides trading pairs directly, you can trade instruments related to currencies or pairs, such as CFDs, options or binary options.

How To Earn Money In Forex

You may have noticed that most brokers offer some level of leverage for your trades. Depending on various factors, they may give you 1:30, 1:50, 1:100, etc. they can offer leverage. While this leverage isn’t exactly a way to make money, it can help increase your profits – or, unfortunately, lead to losses if not used wisely.

How To Earn Money In The Forex Market

Thanks to leverage, traders can make a satisfying profit even with just £100 per trade. Let’s say there is no leverage and you have £100 to trade. If the price moves 3% in your favour, you will make £3. But if you choose a broker that gives you 1:50 leverage, you will open a position worth £5,000 and a 3% move in your favor will net you £150.

However, remember that when you use leverage (trading on margin), you can increase your profit, but also lose more money than the initial deposit.

“Trading” usually means buying something at a low price and selling it at a higher price, so the difference between the buy and sell price is your profit. When this concept is applied to trading pairs, you can say that you are taking a long position.

There is another concept of “short selling” or when you take a short position. This is when you can sell something at a high price and buy it at a lower price later. So the profit here will be the difference between the selling price and the buying price.

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To understand how this works, imagine you are in a coffee shop one morning and someone wants to buy your laptop for £800 because their computer has broken and they urgently need a computer. You agree to sell it. After a few hours, they don’t need the laptop anymore, but they can’t take it with them – here’s your chance to close out your short position. You offer to buy back the laptop for £750 and make a profit of £50 (£800 minus £750).

Although the example simplifies it, the concept works the same way in the forex market. Basically, you profit by selling a pair with the expectation that the price will drop and you can buy the same pair at a lower price later.

Keep in mind that there are many strategies you can come up with when trading forex that can bring you profits. One way to trade pairs directly is to open positions in the same direction as the trend (called trend trading), which means that in an uptrend you will buy the pair and in a downtrend you will sell or short the pair.

Another way to make money from the forex market is to trade contracts for difference or CFDs. CFDs are a derivative trading instrument and are available for different types of markets such as stocks, indices, commodities and currencies.

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If you choose to trade CFDs, you will be able to speculate on the movement of the underlying asset, but note that with CFDs you do not actually own the pair you are taking a position on. With CFD trading, you trade the price difference and profit accordingly.

Let’s look at an everyday example. Your friend wants to sell his motorcycle today for €500, but you believe he can sell it for a higher price tomorrow, so you tell him to wait. Because of the potential uncertainty, you agree with him that if the price falls below 500 euros, you will pay him the difference – if the price rises above 500 euros, you will receive the difference (a small fee, because in the end you do not own the underlying asset) .

So the next day you go to the market and your friend gets an offer of €525 for his bike. For correctly predicting the price action, you will earn €22 for yourself and the remaining €3 will be a payment for your friend.

By trading Forex CFDs you will earn almost the same way, the difference is that you trade CFDs on margin. Margin trading means you pay a certain percentage of the contract value (the broker provides the rest).

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When trading CFDs where the underlying asset is a pair, the position you can take is the same as when trading the pair directly. Accordingly, if you expect an increase in price, you will take a long position (buy) or enter a short position (sell) if you expect a decrease in the value of the pair.

Forex options are another derivative instrument that you can use to make money in the Forex market. Unlike CFDs, the seller of an option must deliver the underlying asset to the option holder if the holder exercises the right.

This means that you, as the owner, have no obligation to buy or sell the pair, but if you choose to do so, the seller is obligated to deliver. So there are two types of options: call option and put option. If you expect the price to go up, you will take a call option and lock in the price at which you can buy the pair in the future. If you predict that the price will go down, you will want to hold the put option because you will be determining the price at which you can sell.

For example, you can set a EUR/USD buy price at 1.10 in anticipation of a price increase. Turns out you’re right and the price does go up to 1.20. Since the option gives you the right to buy the EUR/USD pair at 1.10, you decide to activate it and buy the pair at the agreed price. Once you buy EUR/USD at 1.10, you can sell it at 1.20 on the forex market and immediately cash out the difference.

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If for some reason the price moves against you and falls to 1.08, then the option will expire. It is important to note that whether you exercise the option or not, you pay the option seller a certain premium, and that premium is the maximum loss you can bear.

Binary options are another way to make money with forex. They gained popularity among traders due to their simplicity and the possibility of earning more than 70%, which is why they are also called fixed return options.

By trading binary options, you can speculate on the direction of price action regardless of the size of the move, where the basic form of a binary option is high/low.

Remember that forex trading involves risk, which means you need to prepare before you start trading. You need to understand how pairs work and what factors affect their value.

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It would also be good to familiarize yourself with technical analysis indicators and how to use them to your advantage. Also, try to establish good money management so that you don’t risk all your funds at once.

The material presented on this website is for informational purposes only and should not be construed as investment research or investment advice. Any opinion that may be presented on this page is the subjective opinion of the author and is not an endorsement by him or his partners. We make no representations or warranties as to the accuracy or completeness of the information provided on this page. By referring to the information on this page, you acknowledge that you are acting knowingly and independently and that you assume all risks.

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This article was co-authored by Marcus Raiyat. Marcus Ryatt is a forex trader and instructor from the UK and founder/CEO of Logikfx. With almost 10 years of experience, Marcus is well versed in active forex, stock and cryptocurrency trading and specializes in CFD trading, portfolio management and quantitative analysis. Marcus holds a B.S

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