Making money by trading is great! The thrill is hard to describe and the possibilities are almost endless. The feeling of a successful trade is unique and once you understand the system behind Forex trading, you will know what I’m talking about. But how do you make money trading Forex?
Making money with Forex: the basics
The basics of making money trading Forex are pretty simple. The answer to the question “How do I make money in Forex?” is: “by buying or selling the currencies at the right time.” For example, when the price of gold changes, the price of a currency paired to another currency will also changeThis happens because the currency has become more or less valuable.
But how do you trade Forex? Do you need to go to an exchange office at the airport? No, fortunately not! Anyone can start trading Forex thanks to online brokers—a third-party that gives you the opportunity to trade currencies. Opening an account is usually free and, using a demo, you can even experiment with trading completely risk free.
Basic terms for Forex trading
Reading ratios
Currencies are always shown as a ratio when you trade in Forex. For example, when you start trading GBP/USD, you sell or buy pounds for dollars. When the price is 1,2, this means that you receive 1:2 dollars for every pound. When the ratio goes up to 1,21 you profit.
Long and short
When trading Forex through CFDs (which the best and cheapest way to do it) there are two options to open a trade. The first one is buying, or going long and the second option is selling, or shorting.
When you go long on a position, you make money when the price goes up. If you short, you make money when the price goes down. Making a decision is pretty easy; if you think the price will go up, you go long and if you think the price will go down, you short.
Before you can start trading in Forex using CFDs, you need to know more about the underlying mechanisms. In the ‘Forex information’ category you can read more about price-determining mechanisms, and within the category ‘Trade in Forex’, you can read more about the possibilities of trading in Forex.