Making Money on Forex

By Odrey Wise

First of all we would like to note that trading Forex is an advantageous trading in many aspects. There are lots of reasons why so many people prefer this very market to other markets:

- no commissions - no fees at all (such as clearing, exchange, government, brokerage and whatsoever fees). Brokers compensate their services by spread.

- no fixed lot size - you determine by yourself the lot size allowing you to trade with accounts as small as $250.

- a round-the-clock market - from Sunday evening to Friday afternoon EST Forex market is open, so you can choose the convenient time for you to trade.

- free demo-accounts, financial news, and technical analysis provided by most Forex brokers are extremely useful for people who want to gain experience before starting practicing on real accounts.

Now we may turn back to our question - what is the way to make money trading Forex?

In the currency market, you buy or sell currencies, it is quite logic. The purpose of Forex trading is exchange of one currency for another forecasting the price change - the currency you bought increases in value compared to the currency you sold and you profit from such increase.

Exchange rate means the ratio of one currency against another. For example, the GBP/USD exchange rate means how many British pounds can purchase one U.S. dollar, or how many U.S. dollars you need to buy one British pound. Currencies are always quoted in pairs because while making transaction you simultaneously buy one currency and sell another. Base currency is the first before the slash and the second one on the right is the counter currency. Base currency is the "basis" for buying or selling. If you buy for example EUR/USD this simply means that you are buying the base currency and simultaneously selling the quote currency.

You buy the pair if you believe the base currency will go up against the counter currency and you sell the pair if you think the base currency will go down against counter currency.

If you want to buy you expect the base currency would rise in value and then you will sell it at a higher price, this process is also called by traders "to take a long position". If you want to sell you expect the base currency would fall in value and then you will buy it at a lower price. This is called to take a "short position".

The following example demonstrates how to use fundamental analysis to help us decide whether to buy or sell a certain currency pair.

EUR/USD

Here Euro is the base currency.

If you think that the US economy will weaken, you would execute a BUY EUR/USD order.

If you think that the US economy is firm and euro will weaken against the US dollar you would execute a SELL EUR/USD order.

When closing your position, the deposit originally made by you is returned and a calculation of your profits or losses is done. This profit or loss is then credited to your account.

Before opening a real account with real money you should procure yourself with the necessary information and after studying it try yourself at demo account that is provided for free by most Forex brokers. It allows you to learn more about forex market and to test your trading skills without any risks.

And one more important thing - be sure that you are demo trading for at least half a year before even thinking about involving real money!

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