How To Make Money Online Trading Forex
Forex is the world’s largest market trading over $4 trillion in foreign exchange daily.
I’ve been trading for more than a year now and I would like to share with you how you can start trading today.
I can write about this topic for 1 whole month and still will not be able to cover it all but in this post, I will focus on covering the basics of what Forex is and how you can start for FREE using a demo account.
Before we proceed, I would like to clear some misconceptions or myths surrounding trading. Dispelling these myths will help you not only on increasing the chances of success in Forex but also gives you a better understanding of how it works and what to expect from it.
Myth #1: Forex is a get-rich-quick vehicle
Truth: This is perhaps the biggest myth in the general public’s mind. When you ask a random stranger what they think about Forex, they will most probably tell you something about fast cars, quick profits, luxury chateau etc.
Having these expectations will surely lead the beginning traders to wipe their accounts faster than they thought. The truth is for you to make money in Forex, you need to focus on NOT LOSING MONEY (capital preservation).
Yes, you heard it right. Focus on not losing money and the profit will eventually follow. How fast? Depending on the risk appetite of the trader but on my experience, a 50% return annually (yup annually, not those fancy 20% daily. I will bet my bottom dollar that those are false claims) and consistently will put you in a position of a professional trader.
Myth #2: You have to be super smart to excel in trading
Truth: Trading isn’t a rocket science that only the elite, geniuses can participate. In fact, being over-analytical can actually put the trader on a disadvantage.
Trading is 90% mental game and 10% skills. Some even say that trading is the ultimate anti-thesis of normal human behavior and as you go along your journey in Forex trading, you’ll realize how true that statement is.
Myth #3: You need a lot of money to earn big in trading
Truth: A good trader can make money regardless of account size. Sure you can earn money faster if you have a larger capital but if you don’t know what you’re doing, you may also lose that money faster.
Myth #4: Trading is gambling
Truth: Traders who play for entertainment and mostly rely on luck are gamblers. Traders who treat the game as a business are professionals. Having the odds in your favor before you execute your trade requires proper education and mental fortitude.
Myth #5: Trading is a high risk game
Truth: As the Oracle of Omaha once said: “Risk is not knowing what you are doing”. This holds true to many aspects of life. It’s best to focus on not losing money (treat yourself as a risk-manager) so that when big waves of opportunity come, you are prepared and ready to jump in the trend.
Now, what is Forex?
It is the most liquid market in the world averaging to over $4 trillion exchange daily. The market is open 24hours a day, 5 days a week and exchanges are made over the counter with no central marketplace where orders are processed, unlike stocks.
How can you make money in Forex?
You make money for the difference. As an example, if you think the dollar will rise against the yen (USD/JPY), you will buy the dollar low then sell it at a higher price. An advantage in Forex is that it doesn’t have the bullish bias, meaning you can earn if you buy and can also earn if you sell a particular currency pair.
Advantages of trading Forex
- The market is the most liquid, enabling you to get in and out of a position easily.
- Unlike the stock market, Forex is open 24 hours a day which opens at 10 PM GMT on Sunday and closes at 10 PM GMT on Friday with its main trading centers located in London, New York, Tokyo and Sydney.
- Fewer currencies to focus on which can be advantageous compared to hundreds and thousands of stocks to choose from.
- With the advancement of technology, you can open a live account for as little as $100 and start trading today.
- There’s no commission fee for every trade you make (commissions are in the form of spread). Some brokers who offer ECN has very small commission fee and the overall transaction costs are way lower than stocks and commodities.
- Another advantage is the fact that there’s no market bias in Forex. You can make money in both rising and falling of markets.
- You can trade no matter where you are. You just need a laptop/mobile phone and an internet connection.
How to start trading?
First is to open an account with a broker. I have personal experience opening accounts with several brokers but one of the fastest in execution and withdrawal is XM broker.
Once the account was created, I highly suggest for you to start trading DEMO account first for at least a few weeks just to get the hang of it. Once you’re ready to put your skills and mental fortitude to a test, create a live account by funding it thru your broker of choice.
Things to note:
- It’s very important to open a Demo account first. This will help you a lot to get the feel of how the market behaves and to also have yourself be comfortable in using the broker platform (usually Metatrader 4).
- Study the technical and fundamental analysis. I started in the school of Babypips
- Find a strategy and stick to it. Like what was mentioned earlier, success in Forex accounts to 90% mental mastery and 10% skills.
- Plan your Risk/Reward strategy. If there is one thing I want you to fully understand, it is risk management. You can make money in Forex even with ZERO knowledge and skills as long as you have a good risk management strategy.
- No matter how good you think you are, you will occassionally have streaks of losses and that is absolutely natural. What’s important is to stick to your strategy and execute it as planned. You need to have the patience to execute your strategy over and over again for you to realize the power of risk reward.
- Before you execute each trade, you need to decide how much money you are COMFORTABLE with losing. Having this expectation set before clicking the order button will remove any unwanted actions and worries while the trade is active. How will you know how much you are comfortable losing on each trade? If it lets you sleep peacefully at night without having the urge to check your platform at every possible chance.
P.S: If you really are serious in succeeding in the Forex market, I highly recommend the book written by the greatest author of trading psychology, Mark Douglas : Trading In The Zone. The book focuses on the mental faculty of trading rather than strategy because again, trading success is 90% mental ability and 10% strategy.
If you have questions about making money online thru Forex trading, please drop a comment below and let me know your thoughts.