How do you get money from Forex Trading? Where is the forex money from?


In the forex market, we buy or sell currencies, in order to get money from price changes. From this point of view, forex trading activities are actually similar to financial-market transactions in general, such as stocks.

If you already have experience in stocks, you won't have difficulties in trading forex. However, you also can still trade forex even though there is no experience at all in other investments.

However, there are a number of striking differences between transactions in the forex market and other stock markets or markets. The first and foremost is, forex trading players can get profits both when prices rise and when prices fall.

Unlike the stock where we can only profit, if the price rises. How come?

Answer:

Because in forex, buying and selling currencies is done in pairs. For example, if we buy an EUR/USD pair, we buy the Euro by selling US Dollars at the same time. In this case, we expect the Euro to strengthen to be higher in the future compared to now.

And if that hope really materializes, then the EUR/USD price chart will move up, and we can get money from forex trading.

Conversely, if we sell EUR/USD, it means we sell the Euro currency by buying US Dollars at the same time. We do that when we expect the US Dollar to be stronger than the Euro in the future.

If that happens, then the EUR/USD price chart will move down, and we can still get money from forex trading even though the Euro exchange rate decreases.

From the discussion above, of course you can already conclude the basic concept in getting money in forex. 

Well, below will explain more about the concept of forex trading:

Currency Pair

Writing forex trading instruments is always written in pairs, such as EUR/USD, GBP/USD or USD/JPY. Why, in every foreign exchange transaction we simultaneously buy one currency and sell another.

In one pair, the first currency listed to the left of the slash ("/") is known as the base currency. While the second currency on the right is called the counter currency.

Buy or Sell in Forex Trading

In forex trading, the most commonly used terms are: 'Buy' if you think the value of the base currency will rise and 'Sell' if you think the value of the base currency will go down.

Price of Exchange Rate

Prices in forex trading are formed in markets of international scale. These prices will be seen in the trading software that brokers give us to use as traders, in graphical form.

For example, in the MT4/MT5 prices will emerge at this time which is displayed in real-time graphics. When we open a position, the price used is the price offered, usually there are two, namely the bid price (BID) and the price of demand (ASK).

Difference in Supply and Demand Prices

Bid Price (bid) is the price at which you as a trader will sell the base currency, while the Price Request (ask) is the price at which the trader will buy the base currency.

The bid price is always lower than the demand, and the difference is often referred to as the Spread. Why can there be spread? Because the difference between the two prices will be an advantage for the broker or institution that mediates you with the market.

This can be likened to the selling rate and the buying rate if you do currency exchange on a Money Changer.

Close Buy/Sell

After you open a position in a currency pair, of course, you will need to also close the position to realize the advantages of forex trading.

The method is to close the position. So: If you originally bought, to close means Close [sell] while if you originally sold, to close means Close [buy].

Furthermore, real examples of the money we get from Forex can be practiced with simulations such as the following: For example, we are like traders interested and choose a currency pair GBP/USD (Pound Sterling and US Dollar).

Well, one time, GBP/USD displayed a bid price of 1.2800 and an ask price of 1.2804. If at that time you estimate the value of GBP will strengthen/rise, then you take the position of BUY GBP/USD at 1.2804.

After some time, the price will change. Can move up or move down. If your estimate is correct, the value of GBP/USD will move up. When riding it is your chance to be able to realize the benefits of forex trading by doing CLOSE (sell.) GBP/USD, for example close at the number 1.2822.

From one forex trading transaction, your profits are: 1.2822 - 1.2804 = 18 Pip (Pip is the smallest price movement available in a currency).

Now, what if it turns out that the price of GBP/USD is moving in a different direction, or not according to your expectations?

For example, GBP/USD was turned down to the number 1.2775. If you do CLOSE (sell) in this position, it means: 1.2775 - 1.2804 = -29 Pip (that means you lose 29 Pip).

The good news is that in forex trading you can close the position at any time, so if you are still experiencing losses (floating) then you can hold that position if you feel the chart will turn around so you don't experience a loss.

However, if the graph does not turn around, it is better to close the position before you experience more losses or usually if you cut your capital until it runs out we call it "Margin Call."

More clearly the Pip you get from your trading results is an advantage for you. However, to divert profits in the form of pip into money, more calculations are needed. For the calculation more or less like this:

Pip will be how much money (dollars), depending on the number of lots and the size of the contract you use. The lot amount is the transaction volume that you fill in the order form when opening a forex trading position.

While large contracts are usually attached to the type of account you choose when opening an account at a forex broker.

Generally, there are three types of contracts, namely: Standard contracts: 100,000 units (USD), Mini contracts: 10,000 units (USD), and Micro contracts: 1,000 units (USD).

Well, the illustration of the calculation of profit on the story earlier, assuming an order of 2 lots and using a standard contract, will be like this:

Advantages = Profit Pip * Contract Size * Amount of Lot.

So, your profit is 18 pips * 100,000 USD * 0.2 Lot = 36 USD.

Looking at the example of illustration calculation above, it might be implied in your mind, "Then, forex trading capital is up to thousands of dollars? The smallest micro contract is a thousand dollars, if the standard is even one hundred thousand. Expensive?."

Yes, it's expensive and needs big capital to get big profits, but the good news for forex trading can be as cheap as 10 USD. How come?

Of course, because forex brokers usually provide facilities called, leverage. Leverage is a loan scheme proportional to collateral, so it can increase the purchasing power of funds owned by traders.

For example, a broker offers 1:500 leverages, meaning a trader with a capital of 10 USD can have a purchasing power of 5000 USD (10 USD * 500).

In this case, 10 USD become a guarantee fund (margin) that the trader needs to submit to the broker.

Although later the profit will also be adjusted in proportion to the leverage used by traders, but at least it is clear that the capital needed by traders to start trying to get money from forex trading can be very low.

More profitable for traders, all trading platforms/software from brokers have carried out the above calculation process automatically.

So, we easily know the value of the dollar from our profits without having to bother counting again, just trying to make a profit transaction that you can get that profit. Steady!