Why Forex Trading Is Still Profitable
By Space Coast Daily // April 29, 2021
Today, the biggest financial markets are at your fingertips. Platforms and apps connect us to the gigantic global exchange where over five trillion US dollars circulates daily.
Any individual can turn their foresight into cash if they work hard enough. Here is why retail trading is still profitable three decades after its emergence.
The Basic Principles
The fundamental logic of this market is clear to anyone who has ever exchanged currencies. Since the 1970s, most of them have had floating rates. They rise and fall based on political and economic changes. If you buy some currency while it is cheap and sell it after appreciation, you make a profit. This is similar to the premise of the stock exchange — buy low and sell high. If you know how to trade on Forex, you can master other markets more easily.
While the idea is straightforward, putting it into practice is not that easy. First, you need to develop strong prediction skills. Secondly, the market may always turn against you anyway, which makes risk management crucial.
All currencies are traded in pairs, as they are valued against one another. Each combination is read as “base currency”/”quote currency.” For example, the rate of EUR/USD shows how many dollars one euro is worth. Buyers and sellers use different prices, and the gap between them is how brokers make money.
The US dollar is found in the majority of combinations. First, it is included in all Majors — the most liquid and reliable pairs. Secondly, it is found in the Exotic category, where it is paired with currencies of emerging economies.
How Trades Work
Traders use platforms for desktop and mobile use. These are one-stop-shops with analytical tools, streaming quotes, and trade management features. To buy a currency, you need to open a long position. Selling requires a short one.
Everything you need is accessible through the terminal. Analyze charts and news to understand where the rate is going to move next. Then, initiate a position. Using Stop Loss, you can have it executed when a particular price is reached.
Suppose you go long position on 100,000 GBP/USD, and the rate rises from 1.3157 to 1.3172. You have made a profit of 15 pips (a pip is the smallest denominator) and gained $150. For a short position, you would want the price to go down, not up.
Modern Brokerage Services
Today, brokers make Forex accessible to anyone. Naturally, large profits require large volumes, but you do not need to invest a lot to begin. Accounts are registered online, education is free, and there are plenty of proven strategies that could suit your lifestyle.
The basic principles of Forex have not changed for decades. Today, you make money from ups and downs, just like the retail pioneers did in the 1990s. What has changed is the tools for analysis and execution. Modern software is advanced, flexible, and compatible with any device.