How To Make Money Trading Forex
Buying and selling in the forex market is like buying or selling stocks, bonds and commodities market. The only difference is that currencies are traded in pairs, while on the other hand individual scrips and commodities are traded in the stock and commodity markets. Traders who are experienced in trading in other markets can still easily understand Forex markets. Novice traders may face a little difficulty in the beginning, but with a little investment of time, they can easily understand the forex market.
Leverage and cost are the beauty of Forex trading, which gives an additional edge to the Forex market as compared to equity and other markets. The most important thing for trading in Forex is to understand Forex quotes and be able to calculate profit and loss. Examples can be a good way to understand currency pips and trade ‘balances’. In Forex market, the key is to compare one currency to another and to think about whether the price will fluctuate in favor of the trader or not. Let’s understand this with the help of an example.
Example of Stock and commodities:-
In this example below, a trader bought 100 shares of Microsoft at $20 and sold the stock in the next month at the rate of $22, which means that the trader made the profit of $200 at the end of the trade.
In the next example, the trader bought Gold for $930 and after a week sold it for $940, for the gain of $10, making a profit of $1000 on the trade.
| Assets | Buy | Sell | Profit |
| 1. Microsoft share – Buy 100 shares of Microsoft and sell at the rate of $22. |
100 * $20 = $2000 | 100 * $22 = US $2200 | 100 * $2 = $2000 |
| 2. Gold – Buy Gold at $930 and sell at the rate of US $940 |
100 ounces * US $930 = $93000 | 100 Ounces * US $940 = $94000 | $94000 – $93000 = $1000 |
Here is an example of EUR/USD and USD/JPY pair:-
1. A trader believes the EUR is going to rise against the USD and buys €1 million at 1.6678. After a month, due to high volatility the rate is 1.7042 and the trader closes the trade for a US $36400.
| Pair | Buy | Sell | Profit |
| EUR/USD - | EUR 1000000 * 1.6678 = US $1667800 | EUR 1000000 * 1.7042 = US $1704200 | Sell price – Buy price =US $1704200 – US $1667800 = US $36400 |
2. A trader buys the US Dollar against the Japanese Yen and takes long position US $100000 at the exchange rate of 95.52 and on the same day, trader sold the pair at the exchange rate of 97.52.
| Pair | Buy | Sell | Profit |
| USD/JPY | US $100000 * 95.52 = Yen 9552000 | US $100000 * 97.52 = Yen 9752000 | = 9752000 – 9552000 = Japanese Yen 200000 Or Converted in to US Dollar = 200000 / 97.52 = $2050.0861 |
Trading forex is pretty much like trading any equity or commodity, with a slight difference in how prices are quoted and consequently, how profit and loss are calculated.
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