Forex Trading

A.J. TrillzynskiA.J. Trillzynski Posts: 2,049 ✭✭✭✭✭
edited February 2012 in Strictly Business
I've been trading on a demo account for 2 weeks now and about to go live. anyone else do foreign exchange trades or want to learn? It's a very lucrative way to earn extra cash online.

Oanda is probably the best forex broker for beginners as well as one of the best in general, open a demo account here:

and go through these easy lessons before you start:

it's pretty simple once you understand leverage. It works like this:

How to make profit?
One of the most difficult things for forex beginners to understand is how you make profits trading currencies. At the same time, since we don't charge commissions, many people don't understand how we make money either.

Here are the answers!

How do you make money?
Let's take an example based on the graph below:

You open an Classic Account with €2,000
You think the Euro will go down against the US dollar
You decide to sell 200,000 Euros once the bid price reaches 1.2850 US dollars
Because you are on 1:100 margin, this costs €2,000 – we provide the other €198.000
There is no margin left in your account at this point
The Euros you sold are worth $257.000 US dollars
You decide to buy Euros once they go down to an ask price of 1.2750 US dollars
The Euro ask price reaches 1.2750 US dollars and you buy
This costs $255,000 US dollars
You have now sold 200.000 Euros for $257.000 and bought them for $255,000
The difference is $2,000 US dollars or €1568 Euros
Your profit for a €2,000 investment is €1568 Euros – a 74.43% return!

Here's another example:

This time you think the Euro will go up
You open a Cent Account with 20 US dollars
You decide to buy 1500 Euros when the Euro ask price goes down to $1.2750
It does and the cost is $1912.50
Because you have 1:100 margin this only costs you $19.12 – we provide the rest
The Euro then goes up to 1.2850 US dollars
You sell your 1500 Euros for $1927.50
Your profit is $15.00 – a 75% return on your $20 investment!
How do we make money?
You've made money trading Euros and dollars. We don't charge any commission, so how do we make money?

Notice in the example above that we talked about bid prices and ask prices. These aren't the same:

The bid price is what you pay when you're buying currency
The ask price is what you get when you're selling - and is less than the bid price
The difference between the two is known as the spread. This is where we make our profit. In the first example above, the spread is 0.0002 or two points, and so our profit is about $30 on $200,000.


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