I often get the question how I actually earn my money. When I say that I earn my money by trading Forex, people often do not immediately understand what this means.
People are often curious but they don’t know exactly how it works and how much money is actually in Forex Trading.
If this is also what you are wondering about, then keep reading this.
I think I will answer some of your questions.
There is a lot to tell about Forex Trading and one of the most important things is that there’s always more to learn.
And every day you spend on the Forex Market makes you a better trader.
What exactly is Forex?
Are you not exactly familiar with Forex yet? I will tell you in a minute and by the end of this blog you will have a pretty good idea how to trade at the Forex Market.
Forex is short for Foreign Exchange.
Think of that moment at the airport when you make an international trip to one of your favorite holiday spots.
You can’t pay with your American Dollars (USD) in Paris (France).
So what do you need to do? Exactly, change your American Dollars (USD) for the local currency the Euro € (EUR). Right on that moment you’re a part of the biggest trading market of the world. Off course you’re just a small part of it.
How much money is in Forex?
The Forex market has a trading volume of 5.3 trillion a day. And no, there is nothing wrong with your eyes! 5.3 trillion a day! Let’s move on and see how you can get a small piece of this massive pie.
Just to give an example of the opportunities laying ahead of you.
The Forex market is active 24 hours a day and five days a week. Since at some point of the day at some place of the world the stock market will be open for trading. It starts at Sunday night at 11pm and goes until Friday night 11 pm. All traders: Companies, investors, banks and the small trader like you and I will be trading during this time. I can hear you thinking: Do I have to go outside of my house to a local exchange market or a bank? No, not all at all. And that’s the beauty of this game. Only thing you’ll need to make a trade is a working laptop with good Wi-Fi connection and the best forex trading platform for beginners where you can make your trades. That online platform is called a “broker”.
Who are all the players involved?
- -The banks
The corporate and bigger banks are responsible for give or take 50% of the transactions made at the Forex market on a daily basis. Banks are the biggest players at the Forex market. We call this INTERBANK MARKET.
In other words. I’m talking about the forex currency exchange between banks and financial institutions. Some of these trades are made by costumers, but this is just a small part. The majority of these trades are made for own purpose. Because, let’s face it. A bank has money and wants to make more money so they invest, part of these investments are trading at the Forex market.
- -Investment funds and investors.
Second biggest players are the investment funds and investors since they have access to a large amount of capital which they can trade with. They simply manage collected funds from their clients. Off course you understand the bigger the amount the more revenue could be made.
Another important part of the Forex market are companies all over the world. For example: A German car producer imports American parts to sell the cars in England. How many Forex trades do you think are made in this simple and short example? The right answer is 2. GBP are traded with the EUR and the EUR with USD.
- -Central Banks.
Another big influencer are the central banks. Central banks are used to manage a certain country or region. Think of the European Central Bank (ECB) or Bank of England (BOE) or the Federal Reserve of the United States. Central banks are responsible for fluctuations and the interest rates.
- -Small traders and small investors.
When we talk about small traders, we are talking about you and me. The traders who trade from their comfortable homes on their own accounts. As you can imagine, our influence on the Forex market isn’t big at all, but does it have to be big? As long as we get a small piece of that big pie I walking about earlier right? With the ease of modern day technologies and the supply of all the online platforms the amount of small time traders is rapidly growing.
To be a successful trader you are facing one of the toughest challenges of the world. It is all about being mentally tough and strong, since trading might be 80-90% mentally and emotionally. The hard truth is that maybe 5-10% of the traders will make it. After you’ve red this course you have made your first step towards being a successful trader. I’ll tell you more about the different strategies and risk management later on so stay tuned!
How can Forex traders make a profit?
Making a profit on the Forex comes down to a quirky-sounding word: pip. In fact, pip is an acronym for “price interest point.”
”You’ve met the PIP yet. Cute little happy word isn’t it? Well that’s exactly what it is since this cute little word will make you very happy and rich if you use it the right way.
You need to completely understand how to calculate your wins and losses through the PIP. Otherwise don’t even bother start Forex trading.”
The pip system monitors price movements in the market. Pips are usually measured in decimals. Depending on the pair being traded, pips are usually the last number of the decimal in the price evaluation. A trader’s financial reward is measured in pips, and those pips are converted into dollars.
To understand how this breaks down, you need to know about currency lots. There are three main types of lots you can trade on Forex:
- A micro lot is approximately $1,000 worth of a foreign currency
- A mini lot is approximately $10,000 worth of a foreign currency
- A standard lot is approximately $100,000 worth of a foreign currency
Each type of lot creates a different payout. A micro lot pays about $0.10 per pip captured, a mini lot pays about $1, and a standard lot pays about $10. As you might expect, greater risk comes with greater potential reward.
What I have told you now is only a very small piece about what the Forex market is all about and how much money is actually involved. It is not easy but with the right information and if you keep learning it is not impossible to make money by Forex trading!