Online Work One day getting 400 thousand to 5 million is very easy if you try to learn it! Forex trading is often referred to as one of the ways to make money online. The prospect of huge profits, up to a hundred times, makes some people interested in pursuing Forex. However, what is the method of creating money from forex trading? What are some things that are necessary to understand in order to start trading forex?
Forex trading is buying and selling one foreign currency (forex) for another currency to benefit from the difference in exchange rates between the two. Traders want to buy forex that has a low exchange rate to resell when the exchange rate has increased.
This is a very simple description of forex trading. It looks uniform with money changers, doesn’t it!? However, forex trading is more than just the usual forex trading. There are several factors that make forex trading more profitable than conservative forex trading.
Initially, forex traders can benefit from buying and selling currencies when rates rise or rates fall. Second, forex traders can use leverage facilities from brokers to increase profits. Here’s a complete explanation.
Sell/Buy Currency in Forex Trading
In forex trading, all currencies have standard pairs (forex pairs). For example GBP/USD (British Pound-US Dollar) or AUD/JPY (Australian Dollar-Japanese Yen). The currency mentioned first will be said to be the base currency. Again, the next currency is called the counter currency.
When a trader sells a currency counterpart, it means he is selling the Base Currency and buying the Counter Currency. On the other hand, if he buys a currency pair, he buys the Base Currency and sells the Counter Currency. For example, if you buy GBP/USD, it means you are buying Pounds by selling USD.
There are always currencies that continue to be strong on a partner. By understanding this, you can benefit when exchange rates are strong or decreasing. In more detail, there are 2 things you can do to make money from forex trading:
Buy a currency pair when the Base Currency is predicted to be strong on the Currency Counter, or the Currency Counter will decrease on the Base Currency.
Sell a currency pair when the Base Currency is predicted to decrease on the Counter Currency, or the Counter Currency will be strong on the Base Currency.
Change values always fluctuate (move up and down) from day to day. You can benefit from forex trading by predicting the right time to buy and sell before a change in direction occurs. Try to observe the following chart with the GBP/USD exchange rate:
The chart shows GBP/USD rose between 2017 and 2018, then fell between 2018 and 2019. The pound was down at the start of 2020, but is currently holding firm against the USD. In order to make a profit, traders need to analyze 2 things:
What’s next for the pound to stay strong on the USD? If the answer is yes, then you will be buying GBP/USD.
Or is the pound even going to fall again against the USD? Therefore, you need to sell GBP/USD.
This analysis effort can be carried out in two ways, namely technically and essentially. Essential analysts will study some of the factors that affect exchange rates such as inflation and economic growth. Again technical analysis wants to predict based on proprietary price information that already exists on the forex trading platform from the broker.
The broker has provided a forex trading base in the form of an application for computers or a forex program for Android/iOS. Traders can carry out analysis on this basis, then immediately complete buying (buy) or selling (sell) according to the results of the analysis. Everyone can trade forex as long as they understand how the platform works and can analyze it properly.
Leverage Facility from Forex Brokers
In forex trading, we want to trade currency in terms of lots. We cannot sell or buy 1 USD or 1 GBP, because each business transaction must have a minimum dimension of 1 lot. The question is, how much is 1 lot?
We identify 4 lot sizes, namely:
- Standard Lots = 100,000 USD
- Mini Lots = 10,000 USD
- Micro lots = 1000 USD
- Nanolots = 100 USD
Each forex broker provides forex trading with different lot sizes. What is bright, the capital requirements that you need to deposit are still lower if the broker provides smaller lots.
Wow, so big capital is needed for forex trading? Not really. Because brokers have special facilities for traders so they can reduce the minimum capital requirement. This facility is named leverage.
Leverage is a certain ratio that shows you how much capital you need to deposit as collateral for trading using debt money from the broker. For example, a broker provides leverage of 1: 100, which means you need to pay 100 US dollars to be able to trade 10,000 USD.
Leveraged funds are interest-free, so you can use them to maximize trading without burden. However, your profits and losses will be adjusted in balance with the leverage used. If you use leverage that is too large, then you will need a longer time to accumulate profits. So, you shouldn’t use too much leverage. Should practice trading using leverage 1: 100 first.
In practice, you can start trading forex with a capital of between 100 US dollars. This capital has been fulfilled, equipped with a leverage of 1: 100 and micro lots. However, you will need more and more capital if you trade with mini lots and a leverage of 1: 100, which is a minimum of around 1000 US dollars. This capital functions as margin which becomes collateral for leverage consumption.
It is also important to remember that leverage in forex trading will have a big impact. The capital balance in your account will fluctuate along with the profit-loss made by the trading status that is on track. For example, the trading status is a loss until the margin funds are almost used up, later you will receive a margin call (MC) warning from the broker. After MC, you must submit a capital bonus so that the funds don’t run out. If the margin call warning is ignored, the broker will forcibly close all of your trading statuses at a loss.
You can run out of all your money, if you don’t have perfect insight. Newcomer traders are advised not to give up capital quickly for trading on a real account. You should first practice on a free demo account until you are mastered and able to make the right trading strategy. As long as you have sufficient insight and a professional trading system, of course you can achieve forex trading profits.