How To Make Money Trading Forex In
The object of forex trading is to exchange one currency for another in the expectation that the price will change so that the currency you bought will increase in value compared to the one you sold.
How to Read Forex Quote
Currencies are always quoted in pairs, such as EUR/USD or USD/CHF. The reason they are quoted in pairs is because in every foreign exchange transaction you are simultanesouly buying one currency and selling another. Here is an example of a foreign exchange rate of the British pound versus the U.S. dollar:
GBP/USD = 1.750In the foreign exchange market, you buy or sell currencies. Placing a trade in the foreign exchange market is simple: the mechanics of a trade are very similar to those found in other markets (like the stock market), so if you have any experience in trading, you should be able to pick it up pretty quickly.
The base currency is the “basis” for the buy or the sell. If you buy EUR/USD this simply means that you are buying the base currency and simultaneously selling the quote currency.
You would buy the pair if you belive the base currency will appreciate relative to the quote currency. You would sell the pair if you think the base currency will depreciate relative to the count currency.
Long/Short
The currency to the left of the slash ("/") is called the base currency (in this example, the British pound) and the one on the right is called the quote currency or counter currency (in this example, the U.S. dollar).
When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy one unit of the base currency. In the example above, you have to pay 1.7500 U.S. dollar to buy 1 British pound.
When selling, the exchange rate tells you how many units of the quote currency you get for selling one of the basis currency. In the example above, you will receive 1.7500 U.S. dollar when you sell 1 British pound.
First, you should determine whether you want to buy or sell.
If you want to buy (which actually means buy the base currency and sell the quote currency), you want the base currency to rise in value and then you would sell it back at a higher price. In trader's talk, this is called "going long" or taking a "long position". Just remember: long = buy.
If you want to sell (which actually means sell the base currency and buy the quote currency), you want the base currency to fall in value and then you would buy it back at a lower price. This is called "going short" or taking a "short position". Short = sell.
Bid/Ask Spread
All Forex quotes include a two-way price, the bid and ask. The bid is always lower than the ask price.
The bid is the price in which the dealer is willing to buy the base currency in exchange for the quote currency. This means the bid is the price in which you the trader will sell.
The ask is the price at which the dealer will sell the base currency in exchange for the quote currency. This means the ask is the price in which you the trader will buy.
The difference between the bid and the ask price is popularly know as the spread.
Let's take a look at an example taken from a trading software:
On this EUR/USD quote, the bid price is 1.2293 and the ask price is 1.2296. Look at how this broker makes it so easy for you to trade away your money. If you want to sell EUR, you click "Sell" and you will sell Euros at 1.2293. If you want to buy EUR, you click "Buy" and you will buy Euros at 1.2296.
In the following examples, I am going to use fundamental analysis to help us decide whether to buy or sell a specific currency pair. If you always fell asleep during your economics class or just flat out skipped economics class, don’t worry, we will cover fundamental analysis in a later lesson. For right now, try to pretend you know what’s going on.
EUR/USD
In this example euro is the base currency and thus the “basis” for the buy/sell.
If you believe that the US economy will continue to weaken, which is bad for the US dollar, you would execute a BUY EUR/USD order. By doing so you have bought euros in the expectation that they will rise versus the US dollar. If you believe that the US economy is strong and the euro will weaken against the US dollar you would execute a SELL EUR/USD order. By doing so you have sold euros in the expectation that they will fall versus the US dollar.
USD/JPY
In this example the US dollar is the base currency and thus the “basis” for the buy/sell.
If you think that the Japanese government is going to weaken the Yen in order to help its export industry, you would execute a BUY USD/JPY order. By doing so you have bought U.S dollars in the expectation that they will rise versus the Japanese yen. If you believe that Japanese investors are pulling money out of U.S. financial markets and coverting all their U.S. dollars back to Yen, and this will hurt the US dollar, you would execute a SELL USD/JPY order. By doing so you have sold U.S dollars in the expectation that they will depreciate against the Japanese yen.
GBP/USD
In this example the GBP is the base currency and thus the “basis” for the buy/sell.
If you think the British economy will continue to do better than the United States in terms of growth, you would execute a BUY GBP/USD order. By doing so you have bought pounds in the expectation that they will rise versus the US dollar. If you believe the British's economy is slowing while the United State's economy remains vibrant, you would execute a SELL GBP/USD order. By doing so you have sold pounds in the expectation that they will depreciate against the US dollar.
USD/CHF
In this example the USD is the base currency and thus the “basis” for the buy/sell.
If you think the Swiss franc is overvalued, you would execute a BUY USD/CHF order. By doing so you have bought US dollars in the expectation that they will appreciate versus the Swiss Franc. If you believe that due to instability in Iraq and in U.S. financial markets the dollar will continue to weaken, you would execute a SELL USD/CHF order. By doing so you have sold US dollars in the expectation that they will depreciate against the Swiss franc.
I don't have enough money to buy $10,000 EUR. Can I still trade?
You can with margin trading! Margin trading is simply the term used for trading with borrowed capital. This is how you're able to open $10,000 or $100,000 positions with $50 or $1,000. You can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital.
Margin trading in the foreign exchange market is quantified in lots. We will be discussing "lots' more in-depth on our next lesson. For now, just think of the term "lot" as the minimun amount of currencies you have to buy. When you go to the grocery store and want to buy an egg, you can't just buy a single egg, they come in dozens or "lots" of 12. In Forex, it'd be foolish to buy or sell $1 EUR, they usually come in "lots" of $10,000 or $100,000 depending on the type of account you have.
For Example:
You believe that signals in the market are indicating that the British Pound will go up against the US Dollar. You open 1 lot ($100,000) for buying the Pound with a 1% margin at the price of 1.5000 and wait for the exchange rate to climb. This means you now control $100,000 worth of British Pound with $1,000. Your predictions come true and you decide to sell. You close the position at 1.5050. You earn 50 pips or about $500. (A pip is the smallest price movement available in a currency). So for an initial capital investment of $1,000, you have made 50% return. Return equals your $500 profit divided by your $1,000 you risked to trade.
Auto Trading with Mini Forex Accounts
The steps you need to follow for opening an auto trade mini forex account are quite simple. First you have to select a brokerage firm that is offering their services to open an auto trade mini forex account. Fill in some personal details like your name, address, contact number, e-mail address, and the specific type of account you like to open. After filling in this online query form, you can directly open your mini account. Many agencies now accept $50 to open an auto trade forex mini account, but in an extremely volatile market as forex and because of high leverage, it is better to invest at least $2000.
An auto trade mini forex account uses the same trading platform as any other regular automated forex trading account. The only major difference is the account size, which is much small than a standard account. You can open up a mini forex trading account with as low as $50. Auto trade mini forex account can be a great option for you if you are a new investor in the forex trading market. Internet based auto trading has revolutionized and intensified the advantages of operating a mini forex account by many fold.
As the pip value on any mini account is just $1 per pip, you can develop a disciplined trading strategy while handling an auto mini forex account. Moreover, you learn to overcome your tendency of emotional trading, which, at times, leads to irrational trading decisions. You also learn to limit losses and decide your entry and exit points.
There are quite a few advantages of an auto trade mini forex account. The mini accounts are perfectly suited for those who are new to the forex market. The mini accounts trade in smaller contract sizes, which gives the traders the opportunity to trade with less risk or exposure to the market. This smaller trade size also helps the trader to build confidence. As the trading is completely automated, you can experiment with the features of the trading platform and judge the efficiency of the system.
Auto trade mini forex account gives you more staying power in the market. This enables you to take advantages of multiple opportunities without over-leveraging your account. Most of the auto mini forex account provides user-friendly trading software. It has all the interactive and useful features of a standard rapid execution from live, streaming prices.
In some currency pairs like EUR/USD etc., a one-pip movement in the exchange rate is equal to a one dollar gain or loss in the account value per lot. Usually the auto trade mini forex account offers a spread of 3 or 5 pips on most currencies. So, open an auto mini forex account to master the art of trading before venturing into the market with high volume of investment.
