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6 Simple Tips for Making Money Trading Forex (make $50,000 monthly)

Forex traders take positions by buying or selling one currency against another since currencies trade relative to each other in pairs at a quoted rate of exchange or exchange rate. 

If you’re bullish about a particular currency pair, you might open a long position in that currency pair at an advantageous exchange rate and wait for the currency pair’s exchange rate to increase before you lock in profits. If the exchange rate you close the position at is higher than where you bought the pair, you’ve earned a profit equal to the difference between the two exchange rates.

The inverse applies to shorting a currency pair. If you believe the value of the base currency will decrease relative to that of the other currency in a pair, you might sell it or go short. The goal is to sell the currency pair at the highest exchange rate possible and then close the position once the exchange rate drops. Closing the short position at a lower exchange rate than where you sold it will earn you a profit. 

Beginners need to ensure they follow several key measures to increase their chances of being profitable forex traders.

1. Learn the Basic Forex Trading Terms

Understanding the jargon that forex traders often use helps you to communicate with other traders accurately. It can also help you gain a foothold on what’s required to analyze currencies effectively. 

Currency Pairs

In the forex market, currencies are traded relative to one another in pairs. Currency pairs are categorized as majors, minors and exotics depending on the volume traded. When the U.S. dollar is not a part of a currency pair, it is known as a cross. Majors typically have the largest trading volume, tighter dealing spreads, higher liquidity and lower volatility compared to other currency pairs. The most actively traded major currency pair is the euro quoted in U.S. dollar terms that is written EUR/USD in market shorthand. Minors include the commodity currencies and the Scandinavian currencies quoted against the U.S. dollar, such as the New Zealand, Canadian and Australian dollars. Exotic currency pairs involve less-traded currencies from developing countries such as the Mexican peso and the South African rand.

Point in Price (pip) 

A point in price or pip is the conventional minimum exchange rate movement allowed in a particular currency pair. For most pairs, a pip is a 0.0001 move in the fourth decimal point of an exchange rate, although for some pairs, like USD/JPY, a pip is a 0.01 move in the exchange rate. Using EUR/USD pair as an example, the smallest unit move this currency pair exchange rate can make is $0.0001.

Base Currency and Quote Currency 

The left currency in a currency pair is known as the base currency and the right currency is the quote or counter currency. Charts reveal the movement of a base currency compared to a quote currency. If the price on a chart rises, it means that the base currency has strengthened against the quote currency, which has weakened. The opposite applies when the price decreases.

Bid

A bid is the exchange rate that a market maker quotes to buy a specific currency pair. 

Offer

The offer is the exchange rate that a market maker quotes to sell a particular currency pair. A market maker’s offer rate will generally be higher than their bid rate.

Spread 

Unless you tell them your desired trading direction, forex market makers and brokers generally provide bid and offer quotations for the exchange rate of the base currency expressed in terms of the quote currency. The difference between this two-way quote is known as the dealing spread or the spread. Widening the dealing spread relative to the Interbank forex market provides an income stream for forex brokers. Some brokers also charge additional trading costs, such as a commission or a per-trade fee.

Lots

A lot is a trading unit that represents a minimum transactable amount of a currency pair traded at an online broker or on a futures exchange, although lots are generally not

 used among those operating in the over-the-counter Interbank forex market. As a retail forex trader, common lot sizes include standard lots of 100,000 base currency units, mini lots of 10,000 units, micro lots of 1,000 units and nano lots of 100 units. 

2. Find a Reputable Forex Broker

Trading profitably may be worthless if you’re unable to withdraw your trading gains. Some unregulated and disreputable online forex brokers scam their unsuspecting clients by unfairly restricting them from accessing their margin account funds, so be sure to choose a reputable broker.

A good forex broker will show its commitment to securely handling its clients’ funds by submitting to regulations from established financial authorities. Being regulated also indicates that a broker aims to abide by high ethical and financial standards. 

3. Start With a Demo Account

Seeing a professional trader make money trading forex can make you eager to start immediately with a live account. Replicating those positive results with your own money and lesser experience level can be challenging, however. 

To get a good grasp of how the forex market moves and how a trading platform functions, beginners should start trading in a demo account first. Losing virtual money is easier to handle emotionally than losing your hard-earned cash, but demo trading does give you a taste of what to expect when you go live. 

As a novice, you can use a demo account to practice trading so that you can avoid the discouraging experience of losing large amounts of money while you are learning to trade. Even experienced traders will often use a demo account to check out a new broker and to test and practice using a new trading strategy in a real-time environment. 

4. Begin With a Small Investment

Even if you’ve already grasped the basics of trading forex using a demo account, it’s best to initially only put a small amount of your trading capital at risk when you first open a live account. Don’t risk more than you can handle losing. It’s easier to accept losing a small amount of money than a large amount, regardless of how much money you have.

5. Learn Strategies to Help Maximize Trades

Don’t expect to become a profitable forex trader after attending a weekend trading course. Learning different trading strategies, market analysis and how exchange rates move requires time. Take as much time as you need to practice in a demo account, and ensure you’ve been consistently profitable for several months before switching to a live account.

You’ll also want to learn how to read charts, use technical indicators and employ different trading strategies to optimize your chances of success. Also, study the fundamental factors that impact currencies and make their exchange rates move.

6. Keep a Trading Journal

To avoid repeating mistakes, you need to keep and refer to a trading journal. Keeping a record of your trades provides valuable insight into how you viewed the trade and your thought process before you entered and exited it. Those are valuable metrics for you to use for making better future trades. A trading journal also provides you with the ability to learn from unsuccessful trades.

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