Which is the largest ocean in the world? The more pips you earn in currency trading the larger your profits will be. The basic goal of Forex trading is to swap one currency for another currency then cross your fingers and hope the currency you bought will increase in value relative make money in forex exchange the one you sold.
Then once it increases in value you sell it back in order to receive more of your original currency in exchange. It’s your old favorite investment cliché of buy low and sell high. However, there are many ways to accomplish this with Forex trading. Let’s explore a few examples to help you better understand how to make money in Forex. Pick a Pair Before we dive into the ways a Forex trader makes money, it is important to understand how a currency pair works.
Well, what is an exchange rate? It is purely the value of one currency in relationship to another. In other words it is the amount of Euros that a Dollar can buy or the amount of Dollars that a Euro can buy. Since exchange rates pit one currency against another they are quoted in currency pairs. The first currency listed is known as the base currency and the second is known as the counter or quote currency. The exchange rate will tell you how many units of the counter currency it will take to buy one unit of the base currency and vice versa.
Theory of Relativity Remember when you were a kid and traded baseball cards with your friends? Let’s imagine that it’s 1998 and you are engaging in some hardnosed negotiations with Tommy, the local seventh grade card kingpin. Say you start with 1,000 U. 133,333 JPY with your 1,000 USD. You then hold onto your JPY for 2 weeks at which time your instincts prove correct because the U. USD exchange rate rises to 1.
You then buy 133,333 USD back with your 133,333 JPY, resulting in a profit of about 132,333 USD. This example is a bit extreme and currency values do not usually change that drastically in a two week period, but hopefully you’re beginning to see how money can be made in Forex trading. The Long and Short of It There are several ways for you to make money on a Forex trade depending on whether you want to buy or sell the currency that is currently in your possession. In the example above we decided to buy JPY with the USD we had.