How do people make money by trading forex?… There are a few ways to make money Trading Forex, I would like to focus on the process and steps worth considering.
In the forex market, you buy or sell currencies. The object of forex trading is to exchange one currency for another in the expectation that the price will change, so that the currency you bought will increase in value compared to the one you sold.
Currencies are always quoted in pairs, such as GBP/USD or USD/JPY.
The reason they are quoted in pairs is because in every foreign exchange transaction, you are simultaneously buying one currency and selling another.
For Ex : GBP/USD = 1.5128
The first listed currency to the left of the slash (“/”) is known as the base currency (in this example, the British pound), while the second one on the right is called the counter or quote currency (in this example, the U.S. dollar).
When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy one unit of the base currency.
Like in above example you have to pay 1.5128 US $$ to buy 1 GBP
The base currency is the “basis” for the buy or the sell. If you buy GBP/USD this simply means that you are buying the base currency and simultaneously selling the quote currency. In caveman talk, “buy GBP, sell USD.”
You would BUY the pair if you believe the base currency will appreciate (gain value) relative to the quote currency. You would SELL the pair if you think the base currency will depreciate (lose value) relative to the quote currency.
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Before you trade, you need to follow a few steps below.
- Step 1 – Get some basic foundation (not just technical analysis). Think of it like a career. No one picks up scalpel and becomes a doctor in 2 days. It’s hard work. It is not an easy way to make money because it appears to look like gambling.
- Step 2 – Develop a process and system for e.g. I assess 3 things everyday,
- Volatility and..
- Trade location.
By assessing these you have a sense of risk. I trade cycles so my perception of risk may be different from you.
- Step 3 – Get the appropriate tools and skills to analyse both technical and fundamental frameworks. E.g.
My traders were long Yen the last quarter of 2015, we all made some good money.
Fundamentally, the focus on Japan was never whether QE was working, Japan was never going to stop easing, been doing it since the 1980’s, rather it was going to be based on whether the BoJ was going to continue monetary policy action.
Kuroda said on several occasions that there will be no further policy action. This was a bullish sign with longterm consequences, secondly the US stock market was lacking in confidence, this always causes a flight to safety. The US stock markets are overrun by Japanese investors, with all those stocks being sold, Yen and Dollar were going to be the victors.
Note, I have not even looked at a technical chart. It now became an issue of technically looking for currency that is overvalued against the Yen to sell and buy Yen. Sterling was that guy… This rest is anyone’s imagination.
The point is, there is more to trading than just making money, like all things you have to love it.
At age 16 I was sitting on my balcony discussing macroeconomics with people twice my age.
So money for me is just the icing on the cake.
Reality is I wouldn’t do anything else. If you follow these steps from the start you will succeed.