Many people including myself have thought of this question before: ‘Can I make money trading Forex?’
You may also have seen people making a full time income online just by trading Forex. This is actually quite true and possible if you know what you are doing.
I’ll just state it here first. Just like anything in life, if you have no idea what you are doing, you will definitely not make any money out of it. Especially in Forex, where it may look easy to either bet whether a particular currency pair or stock goes up or down (50% to win right?), you might find your self always on the wrong end of the bet.
I want to share this blog post due to the fact that I have invested in Forex myself, and have lost a substantial amount of money because I did not have much prior knowledge. To most experienced traders, they have a strategy and know when to place a ‘bet’ and when to ‘take profit’ when the time come. Without such strategy, you are just gambling. And the house usually wins in any gambling situation over a long period of time.
This blog post will cover what is Forex all about, why newbies tend to fail, and also the legit broker to go to.
Some common questions about Forex
Q1: So, What is Forex?
Forex is short for Foreign Exchange, which is the trading of currency pairs. An example currency pair could be the exchange rate of AUD to USD – From Australian dollars to US Dollars. You would see people typically type it as ‘USDAUD’ which means the same thing.
In Forex, you are dealing with either ‘buying’ or ‘selling currencies. When you ‘buy’, you are betting that that a particular grow stronger, while ‘sell’ means you are betting it will grow weaker. Bet the correct way the currency moves and you make money.
Q2: I keep hearing the word ‘pip’ mentioned in Forex, so what exactly is that?
A pip is actually used when there is movement in the Forex market. For example, The exchange rate from AUD to USD could be 0.7917 (Which means every 1 Aussie Dollar changes 0.7917 US Dollars) and one pip movement up means it is now 0.7918 (1 Aussies Dollar changes 0.7918 US Dollars now)
With the above example, it means AUD has gotten stronger while USD weakens. Throughout the trading days, currency pairs will definitely move in pips. Some days may not move as much, while some days may be very volatile.
How much each pip is worth depends on how much money is invested in the trade. A pip could be as little as $0.20 per pip, $20.00 per pip or even higher.
Q3: How about ‘Spread’? Is it like butter and jam?
Spread isn’t your breakfast condiment, but it is more like the difference of pips between the ‘buy’ and ‘sell’ price. This is essentially done so that Forex brokers are able to earn a small commission for every trade through their network.
For example, a currency is trading at 1.3089. The buy price could be set at 1.3091 and sell price at 1.3087, which means that the currency has a spread of 5 pips. This also means you always open every Forex trade at a loss, and require it to move slightly for you to start making money (or lose even more).
Q4: I see many advertisements saying start with just $100, but trade as thought you have $1000. What’s the deal here?
Basically, you are dealing with something called Leverage, which is the chance to allow you to trade with higher stakes without requiring the money. The deal here is that you can make way more money if you actually profit on the trade, but you lose way more as well. It is a double-edge sword that could either reap you a lot of money, or make you lose more money than you initially expected to invest.
Pretty much, leverage is something that make a lot of newbies into Forex lose a lot of money. This is pretty much similar to maxing out your credit cards and not having enough money to pay back your loans.
However, experienced traders do use leverage a lot but that is because they know what they are doing with the ‘extra money’ that they have.
Q5: What causes the movement of ‘pips’?
1. The most common reason is caused by the buyers and sellers entering and leaving the market. Depending on whether there are more buyers or sellers, the currency will move either direction. Having more buyers entering the market will usually cause the market to move upwards (Bullish) while having more sellers enter the market causes the market to move downwards (Bearish)
2. The Economic and National situation of a certain country. If a country is doing well, the currency of the country usually goes up. The reverse is also true.
3. Any ‘big’ news, or changes in economic policies. One example is the Non-Farm Payroll (NFP) from the US which the compilation of two different surveys, which is the household and payroll survey. In short, such news usually have huge impact on the movement of pips and currencies can suddenly jump 100-200 pips within seconds.
Q6: You mentioned strategy earlier on?
To put it shortly, there are two approach to trading: Fundamental Analysis and Technical Analysis.
Fundamental analysis refers to a method where a trader predicts the price movement based on its ‘real value’. Traders look at overall state of economy such as the interest rates, GDP, production earnings and more.
Technical analysis refers to a method where traders study the supply and demand in a market in order to determine a trend, or direction the market will move towards in the future. This is done by examining things such as Candlestick charts in order to find patterns.
Traders may use one or the other method, or even both, in order to determine a trading strategy.
Why do most people fail?
This is one of the biggest things in Forex. Most people that enter Forex would definitely lose money in the long run. Even for me, I was managed to make a short term profit but eventually lost most of my money.
There are a few factors that actually attribute to the failure.
1. Believing Forex is quick money
Nope, nope and nope. Unless you mean Forex is a quick way to lose money then I would definitely agree. You cannot expect to make quick profits with Forex, except through a long term plan and proper trading strategy where you can earn a consistent income.
2. No proper plan
Like the saying goes, ‘If you fail to plan, you plan to fail’. Without any proper plan, you would have no idea when is a good time to enter the market with a ‘buy’ or ‘sell. You may get lucky the first few times and win, but eventually your trades will start losing you money
3. Over risking trades
Most experienced Forex traders don’t trade more than 1-2% of their total money per trade. If you have $1,000 in your account, every trade should cost only $10 – $20 at most. Most inexperienced or greedy traders will risk as much as 5-10% of their total money in order to reap higher profits, but can end up losing their money fast too
Another factor is not using their ‘Stop Loss’ or ‘Take Profit’ options, where the system will automatically close a trade if you lost or gained a certain amount of pips.
4. Affected by emotions
This is a top thing when trading, as no one likes to lose money. Even experienced traders may be a victim of their emotions, which make them do things outside of their plan or strategy. An experienced trader does not base his trades on his emotions, but on a proper strategy. These emotions could cause a trader to over-risk trades or trade too large volume, or even letting a trade that lost a substantial amount of money to keep running instead of cutting it off.
Not to mention, traders that are stressed and emotional would keep checking back their phones or browsers to see if they have started to profit. This would slowly consume your time as you would spend every waking minute checking your trades.
Where can I start trading Forex?
If you have read until this point and are still interested in Forex, I am here to point you in the right direction to make sure you land up with the right broker. There is only one broker I realized that is newbie friendly and something that I have personally used. This is none other than…
Owner: eToro (Europe) Ltd
Pays through: Paypal
Minimum Deposit: $50 – $200 (Depending on Country)
Link: Click here to begin
Forex is difficult, that’s why eToro came up with a solution. Make it like a social trading network where everyone can share their tips on how to profit together.
The way eToro is set up is like a social network where you can share updates with your followers, follow other people, or even see how other people are performing with their trades.
Benefits of eToro
- Copy successful traders
eToro allows you to automatically copy trades from anyone you choose to copy! Set from a minimum of $50 to start copying trades easily. This is what makes it easy for newbies to come in and start learning about Forex and trading, as you can automatically copy people who DO know what they are doing and are profiting a lot.If you have some money to spare, you can always put in money and copy the best traders who have been making consistent profits for a long period of time (6 months to a year). Without much management, all you need to do is source out the good traders. Once you do that, put your money and let the system just do the rest of the work.
- Seasoned traders advantage
If you have the potential to make profits from trading, eToro allows you to make commissions and rebates the moment a certain number of people start copying your trades.
- Not only Forex
eToro does not only offer Forex, but you can trade commodities, indices, and even stocks. This would also help you diversify your portfolio too, which also means reducing the risk on your overall investments.
- Demo Account
If you are new, or want to test how trading works, there is a demo mode available within eToro where you can trade without any risk of losing any money. The demo account is provided to you when you open your account so you can use it to learn and practice new trading strategies.
BONUS: As writing of this post, use the code ‘ebonus’ to get up to 30% deposit bonus if you deposit a minimum of $500. Valid until 30 June 2015.
My story on Forex included quite a few mistakes that I pointed out earlier, including trading under emotions and over risking my trades. As a person who is always looking out for new ways to make money online, I was a victim of Forex as I was definitely not prepared for it.
For me, I actually was copying successful traders trades, but not their strategy which was a really big mistake. Every trade that was made was usually based on my personal ‘feeling’ which was not right as well.
Eventually, I lost majority of my money which caused me to cut and stop what I was doing before I lost more money. At least from this, I learned a very valuable and expensive lesson that there is no such thing as quick money, which I hope I can bring across in this blog post.
Forex and trading online is definitely not easy money, and you should definitely cast aside those thoughts of making quick money through these means. Those people that are making a ton of money trading Forex have probably done it for a long time and do know what they are doing in order to consistently make profits.
I hope that through this article that you know the risks and consequences too before deciding to try. If you really do want to try out, eToro is definitely the place to go to as you can learn through the demo account and also copying other people trades and see how they do it.
If you are looking for a less riskier method of making money online, do check out my #1 product that I recommend to newbies all the time by clicking below.