Forex Trading: How To Make Money In Foreign Exchange

Foreign exchange trading is the buying and selling of one currency in order to buy another. Foreign exchange trading is a market where currencies are traded. The foreign exchange market is the largest financial market in the world with an average daily turnover of over $5 trillion per day. The foreign exchange market can be divided into two categories: spot forex and forward forex. Spot forex refers to transactions that take place on the same day, while forward forex refers to contracts that are made for later delivery dates.

Foreign Exchange Trading

In foreign exchange trading, investors rely on rising or falling exchange rates. The exchange rate determines how much of a currency is needed to buy another currency. Price changes in forex trading are expressed in pips and the unit of trading volume is a lot. Forex transactions are made when banks, trading companies, central banks, mutual funds, and private investors buy, sell, exchange, and speculate with currencies.

Until the turn of the millennium, global foreign exchange trading was only available to professionals, i.e. banks and institutional investors such as hedge funds. In the meantime, however, private investors can also participate in the trillion business.

Read also: Is it Legal and Safe to Engage in Forex Trading in Malaysia?

How to make money in forex trading?

Here is an example. You buy a EUR/USD at an exchange rate of $1.1355 and a few hours later sell the pair at 1.1389. Then you made a profit of $0.0034, or 0.3 percent. That’s probably more than the bank is currently paying you in interest each year.

The chances of profit and the risks of loss in forex trading become clear when you know that the transactions can also be carried out with a leverage of up to 500. In this way, you can multiply your earnings – but also leverage them down significantly (more on this below).

Before you engage in forex trading, you should have some experience. Note that exchange rates are unpredictable which can highly affect the way you trade.

Who Offers Forex Trading?

Foreign exchange is not traded on a central stock exchange, but exclusively electronically on the so-called OTC market (“Over the Counter”). While the banks are networked with each other, private traders need a forex account to trade foreign exchange. Specialized forex brokers and high leverage forex brokers offer their intermediary services with trading platforms.

What Fees Should Forex Traders Expect?

The Forex broker earns on the spread between the bid and asks the price of a currency pair. In trading one speaks of bid and ask prices. Due to the high level of liquidity in forex trading, these ranges are usually quite narrow, usually set to the fourth decimal place. The range (spread) depends on the currency pair, the liquidity, and the degree of fluctuation. The more frequently a currency pair is traded, the narrower the spreads.

The margin usually also covers the transaction costs that are due with every purchase and sale. They are lower than in stock exchange trading with shares or derivatives.

Choosing A Reliable Forex Broker To Work With

The foreign exchange market is the largest as well as the busiest financial market in the globe, where it handles a trading volume worth trillions of dollars. When and if done the right and the proper way, forex trading can be a very lucrative investment. This is why the forex market appeals to a lot of traders and investors across the globe.

Working With A Forex Broker

While you can directly trade in the forex market, many choose to employ the services of a forex broker, like,  because of the advantages they enjoy. Forex brokers serves as intermediaries or middle-men between the forex trader and the interbank market, a system that is used by banks as well as other financial institutions to trade various currencies. Hence, an interbank system would refer to all major banks and all their connections wherein they send currencies to one another.

Forex brokers,  provides a way for both retail forex traders and forex investors to connect to the larger market since major banks aren’t interested in having to deal with “small” volumes of money which an individual forex trader puts into the forex market.

What To Look For In A Forex Broker

As forex brokers serves as bridges, it is then imperative that you choose a professional and reliable forex broker to make that connection. Otherwise, you only waste your time and your money. However, with the multiplicity of forex brokers to choose from, it can be overwhelming to take on the task particularly if you don’t have any idea what to look for in a forex broker. To help you in your search, here are a number of things to check when picking a forex broker to aid you in your forex trading endeavor.

HIGH LEVEL OF SECURITY

The major characteristic of a reliable and trusted forex broker is the high level of security they provide. After all, you don’t want to entrust your money to someone who claims they are legit without giving any proof. Thanks to the internet, checking the legitimacy and credibility of forex brokers is now easy and simple as there are strict regulatory bodies around the globe that separate forex brokers who are trustworthy from those who aren’t. Here is a list of these regulatory bodies and their corresponding country:

  • AUSTRALIA: (ASIC) Australian Securities and Investment Commission
  • CANADA: (IIROC) Investment Information Regulatory Organization of Canada
  • FRANCE: (AMF) Autorité des Marchés Financiers
  • GERMANY: (BaFIN) Bundesanstalt für Finanzdienstleistungsaufsicht
  • SWITZERLAND: (SFBC) Swiss Federal Banking Commission
  • UNITED KINGDOM: (FCA) Financial Conduct Authority and (PRA) Prudential Regulation Authority
  • UNITED STATES: (NFA) National Futures Association and (CFTC) Commodity Futures Trading Commission

TRANSACTION COST

Regardless of what type of forex trader you are, you will have to pay for transaction costs. Each time you make a trade, you need to pay either a commission or spread. Hence, look for a forex broker with the cheapest and most affordable rates. However, make certain that that they provide quality service even with such kind of rate. At times, you will need to sacrifice paying more for a much reliable forex broker.

HASSLE-FREE DEPOSIT AND WITHDRAWAL

A good forex broker allows you to make hassle-free deposits and withdrawals as they actually have no reason as to why they should make it very difficult for you not to. Afterall, it is your money and your profits. They simply hold your funds in order to facilitate trading.

TRADING PLATFORM

When engaging in forex trading online, the trading activities mostly transpire in the trading platform of the forex broker. Therefore, you need to ensure that the platform of the forex broker you choose is stable as well user-friendly. Furthermore, most forex brokers also provide a practice or demo account so as to give you the opportunity to have a feel and run through of how forex trading works.