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What is Forex Trading, Can you Profit From it?

March 30, 2012 14 Comments

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One of my colleagues introduced me to Forex trading. Honestly, I didn’t do much trade. A couple of trades and a net loss later, I now realize that Forex trading is no different from stock trading, it requires a lot of time devotion to making a profit.

Unfortunately, I haven’t actually found any mechanism that can earn me money without putting hard work, except passive income, off-course. You can either earn decent money with hard work in your day job or you can earn serious money with the same hard work in a riskier business like trading, stocks, or Forex.

Any kind of trading requires you to have a higher risk appetite to weather potential losses. Forex trading is no different.

Forex Trading is the trading of currencies from different countries. For example, in the UK the currency used is the British pound or GBP, in the USA it’s USD. You can trade these two currencies by buying the GBP while simultaneously selling the US Dollar. This is called going long on the GBP/USD pair.

So, we are talking about two entities for a single trade, unlike in stock trading where we trade only one type of stock. That’s the fundamental difference between the two. You do not decide on the future of a single entity rather, you decide on the future of the exchange rate between two currencies.

In the example above, you’ll make a profit if GBP gains to the dollar. Naturally, you don’t have to keep track of a lot of businesses, you only need to track the political/economic condition of a few countries to put correct trade calls.

but that doesn’t make Forex trading any simpler, as it’s simpler for everyone else in the trade. To make matters more simple, 80% of Forex trades involve USD, so, American socio-economic and political environment knowledge is a must to make a profit in Forex trading and covers 80% of the tracking requirement.

By the amount of money involved in trade, Forex trade is by far the largest medium of trading. A few times more than the total amount of stock trades, surprised? I was! Because I didn’t know about Forex trading much. Never heard anyone making a profit from it.

Forex trade is still not a household trading medium. You and I haven’t really started with Forex trading in a big way. Big banks, large businesses, and currency dealers are major players in this market. And they trade with a large amount of money, running into billions of dollars.

You can learn more on this subject by attending Forex training courses or, thorough online-classes.

How can you trade Forex?

Forex trading is typically done through a broker. As a Forex trader you can choose a currency pair to trade, USD/CAD, EUR/USD, JPY/USD, etc. you should select the pair you think would see a change in the exchange rate. You can view the live exchange rates here.

At the time of writing this article GBP/USD, the ratio is 1.5980, If I buy this pair now, I want the ratio to go up. I will make a loss till the ratio stays lower than my buying price.

Like in every trade, short-term fluctuations are all speculations. sometimes local governments cheap to buy foreign currency due to domestic demand, which raises the ratio in favor of the currency in demand. In the long-term, the movement falls in line with the countries’ economies.

To get started you need to open an account with one of the Forex brokers. A typical broker supports almost all currency pairs. They come with a user interface to buy/sell currencies. You can place your order on your computer. Your broker then passes on your order to international bank markets. (Interbank Market) to fill in your position.

You will be surprised to see a lot of brokers offering no-commission trading, what’s the catch?

They actually will force you to buy your position at a higher price than the ongoing selling price. so don’t be fooled by the claimed honesty of your broker. Don’t get attracted to the zero commission trade offers.

You can start your online brokerage account with a very nominal balance. And, you can trade for 24 hours. No more sneaking into the stock market in between your meetings and calls. You can trade from your home in the evening if you wish.

Almost all brokers allow margin trading, which is a heck of a risk for me, but for a seasoned Forex trader, margin trading is essential for making a living.

Warning – According to statistics, 90% of traders make a loss, profiting the broker in the end. To be one of the 10% profit takers, you need to put in a lot of effort in understanding and monitoring the market on regular basis. If you are comfortable, go ahead a start Forex trading.

In the long-term Forex investor generally makes money.

Forex trading is not for people in debt, people with a budget, and people with low-income. If you are one of them, stay away!

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Comments

  1. Jai Catalano says

    March 30, 2012 at 10:31 AM

    Guys I have done a lot of hustles in my day. I have made some money and lost some money. However, hard work has always been the way to keep the money. Stocks, if done with love and care, is a great way to go.

    On a side note I had about 3000 Euros when it was 88cents to the dollar. Ran to the bank the minute I heard it was over 1.25. That was yearrrrrrrrrrs ago.

    Reply
    • Marina K. Villatoro says

      March 30, 2012 at 4:01 PM

      Jai!

      I remember talking to a friend when he bought tons of euro’s for 95 cents. This was so many years ago that I actually was broke and then time slipped away from me. He’s sitting pretty and all I’m doing is remembering our conversation 🙂

      Reply
    • Forex Broker says

      July 17, 2013 at 4:51 PM

      Yes i profit forex…and you also can. One of the best ways to trade forex and to make it profitable in the shortest time possible is to join a forex club. A forex club is a group of people that log into a webinar and trade under the influence of a professional trader copying the trades that he does. You can also learn the techniques that they use to trade and eventually have the confidence to trade and be profitable on your own. This is a great way to earn as you learn!

      Reply
  2. Marina K. Villatoro says

    March 30, 2012 at 3:59 PM

    THANK YOU THANK YOU THANK YOU , i have been on and off for over 6 months about forex. it’s not easy to grasp and i have heard over and over again about the brokers profiting.

    it’s such a complex area that I kept my reservations of entering into the whole learning process which is huge!

    this article helped clarify things for me and will keep me from spending too much time on learning and focusing more with the stock market and etf’s which I love much more!

    Reply
  3. Miss Wallstreet says

    March 30, 2012 at 4:09 PM

    I trade forex on a regular basis when I see opportunities in the market. My goal this year is to double my account. But with the way the Euro has been bouncing around lately I haven’t found a good entry point for my trend strategy.

    Reply
  4. MoneyCone says

    March 30, 2012 at 5:18 PM

    Good advice at the end of your post! Forex trading involves a lot more risk than stock trading. Start small and grow gradually.

    Reply
  5. 101 Centavos says

    March 31, 2012 at 7:48 AM

    If I went up to someone and said “I’ve got a great business proposition. You can make incredible returns. You can even borrow money do it, get leveraged. The only catch is, nine out of ten chances you’ll lose everyting”. That’s forex trading, not sold very well.

    How about another investment, you can double your money THAT quick!!! 100% return!!! Only you’ve got slightly higher than even odds you’ll lose everything. That’s called the roulette table….. also sold not very well.

    Reply
    • Tim Carbone says

      March 31, 2012 at 11:36 AM

      The challenging part of forex trading is there are some many factors that will come in to play. You have the basic market fundamentals, such as the health of the country you are looking to trade. There are also interest rate fundamentals that will influence currency movement. in addition, the political factors play a large part in a way a currency moves. The average trader doesn’t have access to all of the information and is trading against sophisticated institutions with well developed modeling in place.

      Reply
  6. Robert @ The College Investor says

    April 1, 2012 at 12:59 AM

    There can be profits in Forex, but it requires a lot of work and close monitoring, which I just don’t have time for.

    Reply
    • SB says

      April 1, 2012 at 9:57 AM

      Strongly nod in agreement Robert

      Reply
  7. Karunesh @ chase-a-dream.com says

    April 1, 2012 at 5:15 AM

    For Forex/Stock trading you have to be regular in player. In order to predict the changes in price one should be aware of the events happening. It is hard work, just like blogging.

    One thing more – you got to have a heart to lose thousands of dollars in a day. You may recover it in a week or a month but you got to have that mental toughness

    Reply
    • SB says

      April 1, 2012 at 9:59 AM

      Yes all about trading! Its full of risk and naturally the reward is high.

      Reply
  8. MoneySmartGuides says

    April 1, 2012 at 2:30 PM

    In one of my finance classes for grad school we set up “play” forex accounts and were given $100K to trade. It was a lot of fun, but felt more like gambling than investing to me. Over the course of the semester (4 months) I made close to $20K. But in real life, I don’t have $100K worth of play money to use towards forex trading. I also don’t feel that I have to time to devote to learning about it well enough.

    Reply
  9. Types of Finance says

    April 4, 2012 at 8:22 AM

    Forex trading is simply means foreign exchange trading. Fxdialogue is quite useful for Forex trading and online trading. It provides trading tool due to which trading becomes easier than the normal online trading. It also has learning section where we can get all information about trading if we are new to trading.

    Reply

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