Continuing from my previous post, where I encountered the
It turned out that beneath all the guarantees of endless riches, Mr Singh was actually right about something. There is money to be made in Forex trading, BUT it is definitely not easy, and requires serious training, as well as accepting some ideas that I had trouble getting my head around:
1. You will lose money. In fact there will be times where you will have consecutive losses. There is no way around this
2. Your pride, and other emotions will be tested.
3. Accepting both of these will assist you on to your road to success
In Forex trading, you make money through predicting future price movements in currency pairs. I'll try and explain this as simply as possible:
Lets say I wish to purchase £100,000 at the GBP/USD exchange rate of 1.6. This would cost me $160,000 dollars. Now lets say after a few weeks, the exchange rate rises to 1.7 - my £100,000 would now cost me $170,000. Simple enough right?
Okay, let's take it a step further. Let's say I was smart, and I anticipated this change - how could I use this to my advantage?
If I had seen this coming, then I could have bought the £100,000 when they were 1.6, and when the exchange rate rose to 1.7, converted them back to dollars. This would have netted me a healthy profit of $10,000. I've displayed this in a table below for simplicity.
Trader's Action | GBP | USD |
You purchase 100,000 pounds at the GBP/USD exchange rate of 1.6 | +100,000 | -160,000 |
Two weeks later, you exchange your 100,000 pounds back into U.S. dollar at the exchange rate of 1.7 | -100,000 | +170,000 |
You earn a profit of $10,000 | 0 | +10,000 |
This is a very simple explanation of how a trade works, but this essentially what happens. For the major currency pairs, price changes are measure in 'pips' - which is the increase in the 4th decimal place of a currency pair. So rather than waiting for the exchange rate to rise from 1.6 to 1.7, you'll be looking for small changes, such as 1.6500 to 1.6600 (which would earn you $1000).
In my next post I will discuss very basic risk management, how emotional control is important. I'll also display a trade that I made that was profitable for me.
In the meantime, enjoy one of my favourite songs of all time:
Thanks for reading,
Jr
twitter.com/jr_dot
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