How to make money with trading
17 Aug 2018
The big question on everyone's lips is: how to make money? But, more importantly, how to make money with trading is probably the question to which everyone wants to find an answer.
To make money in the Forex market or in any other market, all you have to do is buy cheap and sell expensive. Pretty simple, would not you say?
But new traders should not get excited: online trading involves risks and costs. Anyone trying to try online trading should be fully aware that it requires time spent planning and analyzing, and also thinking about the costs and risks of losing money. Almost all traders suffer losses at one time or another, especially beginners. To earn money, traders should focus on avoiding losing transactions and money, and then maximizing their overall wins and profits.
The starting point to learn how to earn money with trading is to know the basic terms and have a strategy. It may be obvious, but there are many traders who simply guess when they trade and do not have a strict business strategy.
What should a beginner operator know? Let's see the basic points.
Forex Quote and How to Read It
Currencies are always quoted in pairs, such as GBP/USD. The reason why they are quoted in pairs is because in each currency transaction, you are simultaneously buying one currency and selling another.
The first coin listed to the left of the slash (/) is known as the base currency (in this example, the pound sterling), while the second coin to the right is called the counter or quote currency (in this example, the US dollar).
When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy a unit of the base currency. In the above example, you must pay $1.51258 to buy 1 pound sterling.
When selling, the exchange rate tells you how many units of the quote currency you get when you sell a unit of the base currency.
The base currency is the "base" for the purchase or sale. If you buy EUR/USD, this simply means that you are buying the base currency and, simultaneously, selling the quote currency. In the language of cavemen, "Buy EUR, sell USD."
- You would buy the pair if you think that the base currency will appreciate (the value will increase) in relation to the quote currency.
- You would sell the pair if you think that the base currency will depreciate (lose value) in relation to the quoted currency.
What Are Long and Short Positions?
First, you must determine if you want to buy or sell.
If you want to buy (which actually means buying the base currency and selling the quote currency), you want the base currency to increase in value and then sell it at a higher price.
In trader's language, this is called taking a "long position". Just remember: long = buy.
If you want to sell (which really means selling the base currency and buying the quote currency), you want the base currency to fall in value and then buy it at a lower price.
This is called taking a "short position". Just remember: short = sell.
Bid, Ask, and Spread
All currency quotes are quoted with two prices: bid and ask. For the most part, the bid is less than the ask.
The bid is the price at which your broker is willing to buy the base currency in exchange for the quote currency. This means that the offer is the best available price that you (the trader) will sell in the market.
The ask is the price at which your broker will sell the base currency in exchange for the quote currency. This means that the sale price is the best available price that you will buy in the market.
The difference between the bid and the ask price is popularly known as spread.
In the previous EUR/USD example, the bid price is 1.34568 and the ask price is 1.34588. See how this broker makes trading with your money so easily.
- If you want to sell EUR, click Sell and sell euros at 1.34568.
- If you want to buy EUR, click Buy and you will buy euros at 1.34588.
How Will Leverage and Combinations Help You Earn More Money?
Let's look at an example: how much money can you theoretically earn by exchanging coins?
Suppose you have an account balance of $10,000 and the current EUR/USD exchange rate is 1.1500. In other words, for 1 euro you get $ 1.15. You predict that, during the current trading session, the EUR/USD exchange rate will increase and, according to this forecast, you will buy around € 8700 for your $10,000.
Your forecast is correct! The EUR/USD exchange rate goes up from 1.1500 to 1.1600. Obtaining a profit, he decides to close the transaction and exchange his € 8700 back to $10,092. In effect, your profit for this operation is $92. Not much, right?
Would it be possible to increase your profits? To learn how to earn money or maximize your commercial potential, you can use a leverage that can be up to 20 times more than your initial capital, which also increases your profit potential 20 times. Great, isn’t it?
What Is Leverage?
In Forex, investors use leverage to benefit from fluctuations in exchange rates between two different countries. The leverage that can be achieved in the forex market is one of the highest that investors can obtain. Leverage is activated through a loan granted to an investor by the broker who manages the forex account of the investor or trader.
When an operator decides to operate in the forex market, he must first open a margin account with a Forex broker. Usually, the amount of leverage provided is 1:2, 1:10 or 1:20, depending on the broker and the size of the position that the investor is trading. For example, Libertex offers its investors 1:20 leverage. What does this mean? To negotiate a $20,000 currency, with a margin of 1%, an investor will only have to deposit $1,000 in their margin account. The leverage provided in an operation like this is 1:20.
What Is Compound Interest?
The most important ally you have as a trader is compound interest. You may have heard that Albert Einstein describes compound interest as "the most powerful force in the universe." The strength of capitalization of a compound interest can produce quite spectacular returns for traders.
But what exactly does a compound interest mean and how can it help you generate profits?
Basically, a compound interest means to reinvest previous profits and use those profits to generate more profits. "Compounding" is a long-term trading strategy that can help you make more money as time goes by.
Let's look at an example:
We will start with a $10,000 business account and, on average, our business strategy produces a 10% return per month. This means that in 24 months or two years by reinvesting the previous earnings through the power of a compound interest, you get an incredible profit of $98,497.33.
In the end, the more commercial skills you acquire and the more discipline you use, the more money you will earn. Remember, trading is not a unique scenario, but hard work and dedication will finally pay off.
Due to the way compound interests work, it is the last months or years that really develop their trading account in an important way. So, staying focused in the long term is of critical importance. If you reinvest all your profits and make regular contributions to your portfolio, compound interest will produce even more amazing results.
You do not need to be an Einstein to appreciate the magic of compound interests.
Successful Trades : Minimize Risks and Let the Profits Flow
It turns out that the words of the famous economist and merchant of the late eighteenth century, David Ricardo: "Cut your losses, let your profits continue" have been especially useful for traders over time, especially in the Forex markets.
In a study of 43 million negotiations, it was revealed that most traders performed winning trades but, nevertheless, they lost money when they traded. The study showed that the key mistake made by the traders was that they were taking the wrong approach to both their winning and losing trades. Most of the traders who lost money in the exchanges abandoned their winning trades too early for fear of suffering an unexpected negative reversal. They allowed their losing trades to remain open for too long under the apparent idea that the market would sooner or later suffer a favorable reversal that would allow them to offset their losses.
Both actions are consistent with psychological studies that show that traders fear loss more than profit. But from an objective point of view, traders have found more success by staying in the market when they are winning and leaving quickly when they are losing.
However, we must bear in mind that leverage is a double-edged sword and, although it increases the money you can get, it also means that you can lose more money. The partial answer to the question is: make money is through the use of leverage.
Making money is not an easy task, however, if you equip yourself with the right commercial strategy and mindset, you can achieve great things.
Practice with Simulation and Backtesting
That being said, how is a beginner trader able to understand whether his strategies are actually working and further sharpen his skills? To fulfill this purpose, brokers like Libertex offer their clients a free simulator and a demo account.
Though trading may click instantly with some, it is recommended that traders practice in a trading simulator before trading real money. This makes it possible to test strategies, sharpen skills and avoid losing money in the market with underdeveloped business ideas. Trading simulators can be used for free when you open an account. You simply need to log in to then practice. If possible, traders may want to look for simulators that use real-time market information so they can test their strategies in real market conditions.
The free Libertex demo account has all the above advantages. Register now and train without risking losing money!
Another popular technique for practicing trading strategy is called "backtesting". This involves testing strategies with historical data to see if a particular strategy can be successful. The advantage of retrospective testing is that by using scenarios that have already occurred, you will not be forced to wait for several scenarios to be presented in the real market to verify the consistency of your strategy.
The simulator will help a novice trader understand the nuances of trading and refine his strategies without any risk. Use your strategy and hurry!
*Any opinion, news, research, analysis, price, other information or link in this Article are provided as general comments about the market and do not constitute investment advice.