Making money from foreign exchange can sound like a complex and risky process, one which puts off a lot of people before they even have a go. Yet it is a practice that continues to exist, with millions of people making trades and earning money from the activity. If there were no traders experiencing any success, then surely forex trading would die out? Here’s a simple explanation of how traders make money from foreign exchange.
The Basic Principle
The main idea behind foreign exchange (or forex trading) is the same principle applied to all investing strategies; buy low, sell high. Successful traders purchase a currency when it has dropped in value, with the intention that it will rise again, at which point they will sell it for a profit.
There are a number of things which can influence the value of a currency to change, from political events to natural disasters. The best traders stay on top of the news regarding financial markets and political changes, using changes and predictions to make informed decisions when buying and selling currencies.
Research has found that more than 50% of trades are closed out at a gain, even if some traders may feel like they lose more than they win. This could be because a lot close out at too small a profit yet are willing to let losing trades drag on, hoping for them to bounce back.
There are many successful strategies that have been developed by professional forex traders, with the simplest ones normally the best. Price action and horizontal levels are two key elements of many winning strategies, and should be used to help decide future trades and reviewed and analysed to be built upon.
What You Need to Succeed
In order to be a successful forex trader and make money from the activity you need to understand the basics of trading. Being aware of leverage, stop losses and how to use them is essential to avoid losing large amounts of money in a short period of time.
A reliable, quality trading platform, such as those from Hantec Markets, is required as well. For beginners it is important to use one with a simple interface but that also contains all the information and features needed to help you make successful trades in the future.
Hopefully this has helped to give you a better understanding of how traders profit from foreign exchange and will help your forex trading future.