Did you know that around 56% of Americans own stock? If you are looking at investing your hard-earned money and make a living while trading then you’re in the right place. Our guide below will go over how to make a living by trading forex while working from home.
Read on to learn more.
How Does Forex Trading Work?
When you are a forex trader you are guessing whether a currency is going to fall or rise in price against another currency type. What influences the value of the currency is the political, economic, and geopolitical events. Something else that influences the price is the financial and trade flows.
When you are placing the trade, it is a fairly simple process. If you have experience trading in the stock market then it won’t be too difficult to understand and pick up forex trading. The end goal is for the currency you bought to increase in value and then you sell it for a profit.
An example is if you buy a Euro for 10,000 and the exchange is 1.18 and then it increases to 1.25 exchange rate then you will receive back $12,500 when you sell it. That is a profit of $700.00.
Reading a Forex Quote
The currencies are always quoted in pairs, like USD/EUR or JPY/USD. No matter what they are always quoted in pairs because there are always simultaneous transactions when trading in a foreign exchange.
The currency listed on the left is considered the base currency and the currency listed on the right is called the quote currency. The base currency always has a value of one and it’s the reference element for the exchange rate of the pair. The quote currency lets you know how much you have to pay to buy the 1 base currency.
Keep in mind that the two currencies might not always have a slash in between them. Some people might have them listed at “USD/EUR” or “USD-EUR” or “USDEUR.” All of these examples mean the same thing. Feel free to check out Forex Vietnam to get more familiar with this market.
Flat or Square
When there is no open position then this is called being either square or flat. When you close a position then this is called squaring up.
Every quote in Forex has two prices, including the ask and the bid. The ask price is usually more than the bid price. “Ask” refers to the price at which your broker will sell the base currency in exchange for the quote currency.
In other words this means that the ask price is the best available price that you can buy from the market. Offer price is another word for ask. If you are wanting to buy something, then the broker will offer or sell it to you at the “ask” price.
“Bid” refers to the price that your broker will buy the base currency for in exchange for the quote currency. In other words the bid is the best available price that as the trader you can sell to the market. In order to sell something, the broker is going to buy it from you at that bid price.
Long and Short
One of the first things you need to do is figure out if you want to buy or sell. If you are opting to sell this means that you are selling the base currency and buying the quote currency. In this scenario you want the base currency to fall in value and then you want to buy it back at a lower price.
This example is called taking a short position in the market or going short. Another way to remember it by is: short = sell.
If you decide to buy then this means that you buy the base currency and then you sell the quote currency. The goal is for the base currency to go up in value and then you sell it back at a higher price. This is called taking a long position or going long.
Another way to remember this option is that long = buy.
The spread is the difference between the ask and the bid price. For example, if your quote is USD/EUR where the ask price is 1.1053 and the bid price is 1.1051 then the spread will equate to 1.1053 – 1.1051 = 2.
Tips to Avoid Losing Money
Losing money in the forex can happen super quickly, so we have compiled a list of tips to avoid losing money and giving up before getting started.
Do Your Homework
You always want to do your due diligence and research in order to be successful. You want to learn as much as you can about the forex markets, including the economic factors and the geopolitical factors that affect a trader’s preferred currencies.
Keep in mind that you will never stop learned because the market is always changing. You have to be prepared and open-minded that doing your homework is an ongoing effort. This allows you to keep up with any world events, and regulations that impact the market.
Because the forex market is not as controlled as the stock market, you want to take your time choosing the right broker. You want to choose someone that is reputable and has your best interest at heart.
Make sure that you select a broker that is registered with the Commodity Futures Trading Commission. Also, choose a broker that is a member of the National Futures Association if you live in the United States. For those that are in a different country, check what the regulatory bodies are in your location that have legitimate forex brokers listed with them.
You also want to see what the account offerings from the broker are, such as the spreads, leverage amounts, initial deposits, account funding, and withdrawal policies. It should also be easy to talk to a customer service representative and have all of your questions answered without feeling like you are bothering them.
Another tip is to keep your analysis techniques to a minimum at first in order for those to be effective. When you use multiples of the same type of indicators, it can give you opposing signals and it’s also redundant. It is best to avoid doing this and instead opt to keep your charts clean.
Whenever you notice an analysis technique that is not used regularly to enhance trading performance, it is best to remove it from the chart. It’s tempting to want to use all the technical analysis tools that the trading platform offers.
You not only want to analyze the tools you are using, but you also want to look at the overall look of the entire workspace. Look at the fonts, colors, and types of price bars that you chose. The key is to create an easy-to-read chart that allows you to respond effectively to changing market conditions.
When you’re finally ready to go live, you want to start small. No matter how much time you spend practicing, when you start trading live money, you need to start small. This will avoid pressing the wrong button and making a mistake that will cost you all your money.
Until you start trading live, you won’t fully understand what is called slippage. Slippage is the difference between the price at which the trade is executed and the expected price of a trade. Also, emotions associated with trading live can’t be fully understood either.
You want to keep a trading journal to learn from your gains and your losses. Keep track of the dates, instruments, losses, profits, emotions, and performance. When you keep good records, you can reference these time and time again to avoid making the same mistakes over and over again.
There is no point in doing the same thing when you are losing money. The best way to minimize these losses is with a trading journal that allows you to study your own trading history and make changes where you see fit and necessary.
Ready to Make a Living Trading Forex?
Now that you have learned how to make a living trading forex, you can apply everything you learned above to make informed decisions. Please always keep in mind that investing money in a volatile market is always risky, so you never want to invest more than you can afford to lose.
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