How to make money on Forex

How to make money on Forex

You probably have heard of online foreign exchange market, usually known as “Forex” or “FX” already. Probably you also have seen movies about people on Wall Street earning six-figure sums, driving expensive cars and enjoying life as if without worries. In fact, they trade in financial instruments, which also includes Forex trading. So, the hot question is How to make money on Forex?

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E commerce has evolved significantly in recent decades and markets have become accessible to everyone. I already wrote about several ways to earn from home, but might be you are looking for something more sophisticated, lets say, something about finances.

Although there are many different financial markets with opportunities to earn every day, the Forex market is still the largest and most liquid market in the world. Daily turnover in the global foreign exchange market has hit $6.6t, with a 40% increase in a daily forex trading volume over the last decade, according to a bond research firm LearnBonds. This is one of the reasons why so many traders choose Forex.

It is possible to make money on Forex, but without capital or knowledge it can be difficult. For instance:

  • most people would be able to acquire enough skills fairly quickly (within a few months) to earn around 10-20% a year by trading in financial instruments, but;
  • most people do not have enough capital to survive on a 10-20% profit.

That’s why traders are looking for and building strategies to earn 100% or more in a year. To make money online trading Forex and other financial instruments, it will take a lot of time and good knowledge of the market and the risks involved. However, making money online with Forex trading is possible and many people use Forex trading as their only source of income.

Where to start

At the beginning, one should clearly learn technical analysis and at least a brief introduction to fundamental analysis. Because Forex trading is so fast and instantaneous, it can also be done from home. In fact, you can trade from anywhere in the world using your mobile phone as long as you can access the internet – just as much as you need to start making money online with Forex trading.

Forex technical analysis is based on the theory of the interaction of supply and demand. The basic principles of technical analysis can be found in the technical aspect of the market, which is studied using graphs and historical data. More specifically, the following is analyzed:

  • the price;
  • volume;
  • time period.

Traders use mathematical indicators, statistics and visual (graphical) indicators for technical analysis. The obtained conclusions allow to make decisions on trade transactions.

Forex Fundamental analysis is a method of analyzing financial markets in order to predict the future price of various assets. Fundamental market analysis focuses on the general state of the economy and examines various factors such as central bank interest rates, employment, gross domestic product (GDP), international trade and production, and the relative impact of these factors on the value of currencies.

Technical analysis

Until the end of the 20th century, technical analysis was limited in its functions because statistical calculations of large amounts of data were not possible. This means that indicators were not available either. With the development of technology, this situation has changed today – the digital age can certainly be called the “Golden Age” of technical analysis.

In the Forex market, as in any other financial market, technical analysis is a method of making future price predictions based on the historical “behavior” of an instrument / asset.

When analyzing Forex market currency pairs, traders consider five basic units of historical data:

  • candlestick opening price;
  • the highest point of the candlestick;
  • the lowest point of the candlestick;
  • candlestick closing price.

The fifth basic unit is volume and in the Forex market it is a bit problematic. As the Forex market is a decentralized OTC market, it is almost impossible to obtain objective market volume data. For example, in stock and commodity markets, volume data are available and are an essential part of technical analysis.

How to make money on Forex:Candlestick definition
How to make money on Forex:Candlestick definition

If you come to a conclusion about a trend, the next step is to determine if it is:

  • upward trend;
  • downward trend.
How to make money on Forex: Forex trends
How to make money on Forex: Forex trends

Ideally, you could also determine the duration of the trend.

Forex Fundamental analysis

The fundamental analysis of the market in trading financial instruments predicts that:

  • the (market) price of an asset may differ from its fair value.

That is why in some cases the market price may differ in the short term – it may be lower or higher than the fair value of the asset. The representatives of fundamental analysis believe that:

  • the price may be erroneous in the short run, but it will always return to fair market value.

The purpose of fundamental analysis in the trading of financial instruments is to determine the fair value of an asset, compare it with the current price and make a trading transaction based on these findings.

Fundamental market analysis is not just about comparing economic data with historical data. There are many different economic theories that surround fundamental analysis, creating a kind of economic data puzzle in which it is possible to compare historical data with future forecasts (for example, to compare GDP growth historical data and next year’s GDP growth forecasts).

Capital flows gradually from countries where it accumulates more slowly to countries where it can accumulate potentially faster. It all has to do with how strong the economy is – if the economy is projected to be strong, the country will also become attractive to foreign investors, as it is likely to be more profitable.

The Minimum Capital Required to Start Day Trading Forex

Most experts agree that in order to trade Forex effectively, you need a Forex broker. Trying to trade Forex using a regular bank account or a money changer is too costly and slow. Unfortunately not all Forex brokers work with the traders from the United States of America.

According to the US spot Forex market regulations, only properly registered brokers may solicit and offer service to residents of the USA. FXChoice is one of the most popular brokers among the US. They are FXChoice is suitable for all types of traders, whether you’re a beginner or already experienced.

So, the amount of money you need to start will depend upon your broker’s minimum deposit requirement. Some Forex brokers require a minimum initial deposit of only $50 to open an account and some accounts can be opened even with no initial deposit at all. For example minimum initial deposit of FXChoice is $100 USD. If you open a live account with them by clicking on the referral link I have posted above, you will receive a one-time 15% deposit bonus.

However, if you are getting into Forex trading you probably want to get money out of it. Experienced traders advise not to trust the stories about how to start forex trading from scratch, but to open an account with $ 500 or higher. The more money you have in your trading account, the more you are likely to make in profit. After all, you need money to make money, as the saying goes.

If you have $500,00 in your account. Being a beginner, you want to start out conservatively taking less risk, say at 1% of your account per trade. That means the most you can risk is $5 per trade.

How to make money on Forex: Start Day Trading Forex
Image by William Iven from Pixabay

Simple Forex Strategies for Beginners

It is advisable to start with less risky trades that will bring a stable profit, gradually accumulate funds and when confidence has increased, start trading with larger volume.

Unlike other brokers that use a standard trading platform, IQ Option has a proprietary custom-built platform to cater to the needs of its users. The platform is very easy to use and is well-designed. It has many useful features including multi-chart layouts, technical analysis, historical quotes, volatility alerts, market updates, stock screeners, economic calendars, and more. It’s also available in 13 different languages.

As personal funds are used in trade, there is always a risk of losing them. Forex is not one of the sources of “quick profits” and many people have lost everything by irresponsibly trading Forex. Almost all beginners “fall” with the same mistakes:

  • trade without a plan and strategy;
  • emotional trading similar to a casino;
  • trade without discipline.

You should be especially careful when choosing a forex broker. Analyze all the information related to the brokers found, pay attention to customer reviews and the availability of a license from serious regulatory bodies. With dubious or unlicensed brokers, new traders end their Forex careers before they even begin. An unreliable or fake broker can quickly disappear with your deposit. So, before you think about how to make money online with Forex trading, you should find a reliable broker.

Forex trading is impossible without systematization and formation of a clear strategy that uses known market patterns. Each strategy has its own characteristics and is suitable for a particular trading style. There are several easy understandable strategies for beginners.

Demo account

As personal funds are used in trade, there is always a risk of losing them. Probably one of the best ways to start trading financial instruments is a Demo account. Most of the reputable brokers offers this option. For example with MonetaMarkets or FXChoice, opening a Demo account takes less than 30 seconds, and with no downloads required traders can start practicing on their demo account in no time at all. It can be a great helper for both beginners and experienced traders and private investors who want to test the performance of their trading plan and strategy in real market conditions without risking their personal funds. A demo account is one of the best ways to test your skills and abilities in trading financial instruments in real market conditions.

Follow trends

The easiest for beginners is “Follow trends” strategy. It is based on technique that you need to follow trends and open up your position in the direction of the trend. Market trends are usually long, medium or short-term, so you also have to decide if you want a long-term or a short-term strategy which in its turn will give you an idea of what type of charts to use.

Breakout

A breakout normally happens when a market moves to new directions, beyond the support and resistance indicators. Breakouts are a good indicator for traders because when they occur, they are usually seen as a signal that shows that a new upward trend is beginning.

Momentum

“Momentum” simply means buy something if it is going up and sell it if it is going down and it is a popular strategy, especially for beginners.

That’s how Adam Lemon from DailyForex explains this strategy:

The first part of the strategy is to create an excel spreadsheet that shows the changes in price over the last 3 months of a universe of 28 Forex pairs and crosses. It is simplest to make this calculation each weekend using weekly open and close prices, as a period of 13 weeks approximates nicely to 3 months…

I use the 28 pairs and crosses that you get from the 7 major global currencies. There is no reason why you cannot add currencies, although the more exotic you get, the more expensive they get to trade. Choose the 6 currency pairs/crosses that have moved the most strongly over the past 13 weeks. These are the pairs/crosses you will look to trade over the coming week. You will trade in the direction of the movement. For example, if EUR/USD has changed in value by -5%, and that is the largest change of any pair, you will be looking to trade that pair short.

Final thoughts

In the Forex way of thinking, percentage profit is more important than profit in monetary terms. Despite tons of ads that claim Make Money with Forex Fast or Make Money with Forex Easily!, free yourself from unrealistic expectations – you won’t become a millionaire in a year! Probably not in three. Not even ten if you don’t invest your time learning and gaining experience in a Demo or real account. But if you learn with determination, without deviating from your goals, and maintain a constant interest in the financial markets – anything is possible. Note: everything depends not only on the amount of money invested, but also on the time spent on trading!

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