With unemployment in the United States currently still at around 6%, millions of people are looking for new ways to bring in income. A lot of those people are getting into the forex trade market, and for good reason.
There's a lot of money to be made in forex trading. In fact, daily turnover in the global foreign exchange has hit 6.6 trillion dollars, with a 40% increase within the decade. That's a lot of money.
So what exactly is forex trade and how do you do it? I'm glad you asked interested investor. Read on to find out how to forex trade like a pro for plentiful profits.
What is Forex Trade?
It's simple really. Forex is "foreign currency and exchange" blended into one word. Foreign currency exchange is taking one currency and trading it for another.
People exchange currency for multiple reasons, usually for commerce, trading, or tourism.
Here's an example: let's say you're vacationing to Italy with your family. You can't just show up to Italy waving your American dollars around- that currency isn't accepted. Italy is part of the European Union and its form of currency is the euro.
Since Italy uses the euro for trade and commerce, you'll have to go to your bank and make a trade.
You bring 1,000 USD and hand it to your banker. The current rate is .844EUR for 1USD, so the banker hands you 844.06 EUR and you go on your happy way.
Congratulations you just participated in forex trade.
Becoming a Forex Trader
In order to make money with forex, you need to become a trader. An individual trader is someone with personal funds who execute trades on online trading platforms.
There are online brokers, such as no deposit bonus forex, that offer leverage to individual traders as well. Leveraging your money allows you to make a lot more money than you would normally.
Even still, amounts traded by home traders are small compared to professional traders.
How to Trade Forex For Beginners
To make money trading, you need to purchase the currency that you expect to rise in value. Once it rises in value, you sell it back to the money market and make your profit.
For example, you have 500USD and predict that the AUD is going to increase in value within a day. Currently, 1USD is worth 1.37AUD. So with your $500, you purchase $685AUD.
You keep your eye on the AUD and sure enough, it goes up to 1.38AUD equivalent to 1USD. You trade your AUD back on the money market for USD and make a profit of $5.
Now $5 doesn't seem like a lot of profit, so next time you decide to use an online broker to leverage your money. Instead of $500 to trade with, you now have $50,000. The same trade you made above now yields you a $500 profit.
Now we're talking. You are on your way to finding FX fortune.
You just need to find a dependable forex broker first. There are many factors to consider when looking for a foreign exchange currency broker, so you should look into services like Ninjatrader. Read an honest review on Ninjatrader to determine if it's the best option for your forex experience and goals.
How to Read a Forex Quote
In every foreign exchange transaction, you're simultaneously buying one currency and selling another. That is why currencies are always quoted in pairs.
If you see USD/AUD together, you're reading the USD as the base currency, and the AUD as the quote currency. If you buy USD/AUD this simply means you're buying USD and selling AUD (buy-base/sell-quote).
So what does USD/AUD=1.37 mean?
In the above example, this would mean that you would pay 1.37AUD for 1USD. Since you're buying the USD and selling the AUD, you're hoping that the USD will go up in value so that you can sell back the USD for more AUD than you invested.
Selling back the USD for AUD would look like AUD/USD.
Useful Forex Lingo Explained
Buying in trade talk is called "going long" or taking a "long position". Selling is called "going short" or taking a "short position".
Remember, if you're going long (or buying) then you want the base currency to appreciate, and if you're going short (or selling) then you want the base value to depreciate.
Other trade talk to know is bid, ask, and spread.
The bid is the price your broker is willing to buy the base currency in exchange for the quote currency. The bid is the best available price you as a trader can sell to the market.
The ask is the price your broker is willing to sell the base currency in exchange for the quote currency. The ask price is the best available price you can buy from the market.
The difference between the bid and ask price is called the spread.
How to Know When to Buy or Sell
If you're going to trade forex like a pro, you're going to have to learn how to predict when certain currencies will rise or fall. Having a basic understanding of economics will help you make these predictions.
Currency rates rise and fall due to supply and demand. High demand or a shortage of currency gives it a higher value.
Demand for a countries currency means a high amount of circulation at one time. The faster a currency circulates the more valuable it is.
A country's relative economic health is a big indication of whether its currency rate will rise or fall. If you believe that a country's economy is about to boom do to a new impending trade deal, then it would be a good time to buy before the value increases on the market.
A country's currency rate will go up if:
• Inflation goes down
• Interest rates go up
• Public debt goes down
• Political stability goes up
• Current-account deficits go down
Where to Trade Forex
There are many online trading platforms to choose from to get you started on your forex trading path. Before you can start trading online, you will first need to find a trusted broker that can connect you to the giant forex market.
Once you have found a forex broker, open an account with them similar to how you would open up a bank account. And voila! You are ready for forex trading.
Find Forex Fortunes
Now you're to forex trade like a pro. Start out small and slowly use more and more leverage to make the big bucks. Happy trading! If you've enjoyed this article, you can read similar articles about stock market investing on my Investing page.
