What is Forex Trading and How Does it Work?
The best place to start if you’re a beginner is to understand what forex actually is.
Forex, FX, or foreign exchange, is the buying and selling of currency in order to gain profit.
Have you ever gone on vacation and exchanged money for another currency, such as trading your USD dollars for EURO? This is what forex traders do, albeit on a much larger scale. They try to anticipate whether a certain currency is going up or down, and profit off of that prediction.
Granted, it’s a lot more complicated than that. The good news is there’s more resources than ever online for you to learn.
Currencies are always fluctuating. When you trade forex, you are trading a ‘currency pair’- selling one currency while trading another. You speculate on how a currencies ‘pair price’ will change and try to profit off of this change.
There’s a lot of reasons why Forex trading is attracting more and more people everyday, hoping to get rich off the market. A big one is that, in comparison to the regular stock market, it’s easier to make a bigger return on smaller investments.
It’s also more reliable. Instead of investing in a company and hoping the stock’s go up, in forex you are banking on exchange rates between two currencies changing, which is happening constantly. You just need to buy/sell at the right time, which you can even do with the help of software that will identify these trends for you.
It’s a bit difficult to learn how these changes work at first, so stick with me. I created this website with the beginner in mind; there are tools online that will help you make money with forex trading. I’m telling you everything I wish I could have read when I first started exploring the FX world.
Forex Trading Basics
Foreign exchange trading is the trading of world currencies in pairs.
Currency pairs are shown as EUR/USD, for example. This means that you would sell USD to buy Euro.
The foreign exchange rates fluctuate on a daily basis dependent on the political, economic and business environment domestically as well as internationally. Based on these conditions you would choose to either sell the currencies or buy currencies.
If you are dealing in EUR/USD currency and believe that the Euro rate is likely to rise, then you would buy the Euros and sell USD. On the other hand if you think that the Dollar rate is likely to increase, then you would buy USD and sell the Euros.
The forex market is extremely risky and traders need to be very careful.
As a trader you would buy and sell the currencies with the help of leverage. When you use leverage, the gains and the losses due to currency fluctuation is magnified.
Currency rates are always shown as Bid/Ask rates.
If the current rate quoted for EUR/USD is 1.26985/701, it means that you would get 1.26985 Euros, if you were sell 1 USD.
You would get USD 1.26701 if you were to sell 1 Euro.
The difference between the ask and the bid rate is known as the spread (the profit or loss) that would be made by the dealer.
Let’s take the example of Euro and USD
In this example the bid price is 1.4874 and the ask price is 1.4879. When the trader pushes the sell button, he would get $1 when he sells 1.4874.
The trader will have to buy 1 Euro by selling 1.4879 USD.
If you think that the US economy is going to weaken further, then you will sell USD and buy Euros. The trader will anticipate that the Euro will increase in the future.
The trader will sell the Euros at a later date and book the profit. If the trader believes that the USD will rise, then he will sell the Euros and proceed accordingly.
You should trade forex on margin after you have carefully considered your investment objectives, your risk appetite and have gained a level of experience.
Can I make money trading forex?
Forex is the most widely traded market, period. FX is even bigger than the stock market.
The daily volume of the trade is $3.2 trillion and is even larger than the equities market
Forex is a global market. There are over 100 types of currencies to be traded. The daily turnover in the market is over 5.1 trillion, on average. The market is almost always open- it is traded 24 hours a day, 5 days a week.
What does this mean for us?
It means that there is enough to go around for everyone. Even if you have $50 to start trading, just getting a small piece of that pie is valuable. Anyone can start trading, although this doesn’t mean anyone should.
With the right methods, guides and platforms you can easily make 100’s if not 1000’s of dollars a day, from the comfort of your own home.
I do it. I have friends who do it. I know friends of my parents, in their 60’s, who have been doing it for decades.
If you do it properly, you can carve out a nice life for yourself by trading the foreign markets.
I currently make about the average salary of a successful doctor, just from trading on forex. I work 2-3 hours a day, some days less, and no one tells me what to do. Being my own boss is a gift that I don’t take for granted, and I’m positive once you make the change to being a trader you won’t take it for granted, either.
How much money do I need to start trading Forex?
One of the beauties of Forex trading, and why so many people start on FX, is that you can start with a minimal amount of capital.
The question of how much money you need to start trading forex is a question that needs clarification.
If you look on the internet, the answer to this varies greatly.
Some say you shouldn’t bother with less than $10,000. Ten grand? No regular person has that type of money to start trading, unless you’re wealthy already. These days I am trading more on that level, but I only started with a couple hundred dollars.
To answer this question, you need to consider your end goal. A lot of the people who say you need thousands and thousands of dollars to start trading are expecting to make thousands back everyday. These people are rich. These guys come into the game with a background in finance, looking to buy a new house with the money they trade on forex.
And that’s okay- let them think that this is a rich man’s game. It’s not.
Some sources says $500 is enough to trade. Others claim you can even start with $50.
The more money you put in, the more you get out. But we don’t always start out rich. I had to build my way up, and that’s just fine.
If you’re like me, you’re looking for a lifestyle change. A consistent method to make money online for a living. You aren’t already rich, but somewhere down the line you hope to be.
I started trading with $100.
It took a bit of time to make a living out of it but I did it.
The question of ‘How much money do I need to trade Forex’ is irrelevant. It all depends on how much you have already, and how much you can risk to trade. With the right tools, any amount of money can progressively grow by trading the forex market.
Where can I trade Forex?
Online! Welcome to the digital age. It’s a beautiful thing, isn’t it?
My favorite part about FX trading is that I can do it online, anywhere. Some days I go to Starbucks, some days I trade in bed. Sometimes, when I’m even lazier, I trade from my phone. I can even trade on the go.
The question of “Where to trade Forex” boils down to which broker you choose to use.
A Forex Broker is “an intermediary who buys and sells a particular asset or assets for a commission”. Simply put, it’s the platform you use as a trader to actually trade. You need access to the markets, so you sign up with whichever platform you choose to make your money. These brokers provide additional benefits other than allowing you to trade, such as financial support and trading help.
With the increasing popularity of Forex trading and the growing number of traders, there are new FX brokers popping up every single day. Figuring out which broker I wanted to use when I first started trading forex was overwhelming, and that’s something I focus on on this site.
Over the years I’ve used numerous broker sites, some good and some not so good… some absolutely terrible.
I suggest choosing your broker wisely, as you are depositing your hard earned money and trusting them with all the money you make in the future. I’ve had the pleasure of using these <insert broker name> for years and have been personally recommending them to my friends as well, and we have not had a single negative thing to say.
Choosing where to start trading forex is a very important part in the process, so choose right.
How do I get started trading forex?
Ah, here we are. The hardest part of all.
When I first started exploring forex trading, I spent hours reading everything I could get my hands on. There is so much information online it’s insane- as I’ve mentioned, my goal with this site was to create a simple, yet effective introduction to the FX world for the eager beginner to start making money today.
How do you get started? Simple. Start trading.
That being said, be smart about this.
You could, in theory, put a couple hundred dollars in the market and start buying and selling currencies without even thinking. Sure, you might turn a profit. You might even get lucky and double your money in a day- it’s happened.
This is where strategy comes in.
If you Google search “Forex strategies, you get 106,000,000 results. That’s 106 million results. Forex is incredibly popular, which means there is also a vast amount of content relating to the forex trading online.
Along with that, there are hundreds of different strategies and methods on how to turn profits in the FX market. After literally hours of reading about various trading strategies, I was left even more lost than I was before.
How the f#$% are you supposed to know which strategy is best?
I’ll do you a favor and save you some time.
Short answer is, you don’t.
This will come with time- you are still a beginner. You aren’t dropping millions of dollars into the market, expecting to catch a currency upswing and sell your trade for a $100,000 profit two weeks in.
What we are trying to do is turn consistent income. We are trying to make an honest living, as we aren’t already rich.
Luckily for you, there are tools designed with the beginner in mind. Luckily for me, I found these tools early on.
Some of my friends weren’t so lucky.
Instead of trying to anticipate a lucky once off trade, what we want is to make a percentage of our money back every single day.
You need to learn how to trade forex, forex trading strategies, etc.
So How Do I Learn To Trade Forex?
If you’re just starting to trade forex, as I was, you need to invest in a course. Paying for a course is the most expensive part of getting started, but it is so, so important.
This is what helped me when I first started trading on the foreign exchange market, and I stand by it to this day.
Remember, we want to make a living. We are not gambling, and this is not horse racing.
As you can expect, the rising popularity of forex also means a rising amount of scams online looking to take your money.
Once again, this is why I created this website- to sift through the scams and provide valuable information for you, the beginner.
You can read about my favorite forex course here. After a I spent a long time losing money, a more experienced friends recommended this and I cannot recommend it enough. It does an amazing job of giving you all the knowledge you need without being overwhelming or confusing. The guys that made the course have been trading forex for decades and they are insanely good at it.
Learn from the best.
Invest in yourself to learn how to trade forex, and then you can get started making money. People such as myself are making a great living doing this, if you want to get started immediately then buying this course (link) is the way to go.
Once you’ve learned how to trade FX, then you can continue on and sign up with a broker (link). After you’re learned everything and signed up, the hard part is done. You can start trading and, soon enough, you’ll be making money in your pajamas!
As for my introduction to forex trading, I’ll end it here. Start learning now so you can get on your way to financial freedom.
If you haven’t already, enter your email (look for the sidebar to the left of this page) for a great PDF eBook on other methods you can use to make money with forex.
If you want to learn how to trade forex, go here.