How to make profit from Forex?

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.

Managing your risk

In the examples above, the dollar moved in the direction you expected. However, it could move in the opposite direction, and you could lose money. There are a number of things you can do to manage this risk:

• Change the default 1:100 margin for your account - 1:10 for low risk or 1:500 for high risk
• Manage your money by spreading it over several investments

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Making money in forex is easy if you know how the bankers trade!

 Bank traders only make up 5% of the total number of forex traders with speculators accounting for the other 95%, but more importantly that 5% of bank traders account for 92% of all forex volumes. So if you don’t know how they trade, then you’re simply guessing.

First let me bust the first myth about forex traders in institutions. They don’t sit there all day banging away making proprietary trading decisions. Most of the time they are simply transacting on behalf of the banks customers. It’s commonly referred to as ‘clearing the flow”. They may perform a few thousand trades a day but none of these are for their proprietary book




They actually only perform 2-3 trades a week for their own trading account. These trades are the ones they are judged on at the end of the year to see whether they deserve an additional bonus or not.



So as you can see traders at the banks don’t sit there all day trading randomly ‘scalping’ trying to make their budgets. They are extremely methodical in their approach and make trading decisions when everything lines up, technically and fundamentally. That’s what you need to know!

As far as technical analysis goes it is extremely simple. I am often dumbfounded by our client’s charts when they first come to us. They are often littered with mathematical indicators which not only have significant 3-4 hour time lags but also often contradict each other. Trading with these indicators and this approach is the quickest way to rip through your trading capital.




Bank trader’s charts look nothing like this. In fact they are completely the opposite. All they want to know is where the key critical levels. Don’t forget these indicators were developed to try and predict where the market is going. The bank traders are the market. If you understand how they trade then you don’t need any indicators. They make split second decisions based on key technical and fundamental changes. Understanding their technical analysis is the first step to becoming a successful trader. You’ll be trading with the market not against it.





What it all comes down to is simple support and resistance. No clutter, nothing to alter their trading decisions. Simple, effective and highlighting the key levels.

I’m not going to go into the ins and outs of where they actually enter the market, but let me say this: it’s not where you think. The trendlines are simply there to indicate key support and resistance. Entering the market is another discussion all together.

The key aspect to their trading decisions is derived from the economic fundamentals. The fundamental backdrop of the market consists of three major areas and that’s why it’s hard to pin point currency direction sometimes.

When you have the political situation countering the central bank announcements currency direction is somewhat disjointed. But when there are no political issues and formulated central bank policy acting in accordance with the economic data, that’s when we get pure currency direction and the big trends emerge. This is what bank traders wait for.

The fundamental aspect of the market is extremely complex and it can take years to master them. This is a major area we concentrate on during our two day workshop to ensure traders have a complete understanding of each area. If you understand them you are set up for long term success as this is where currency direction comes from.

There is a lot of money to be made from trading the economic data releases. The key to trading the releases is twofold. First, having an excellent understanding of the fundamentals and how the various releases impact the market. Secondly, knowing how to execute the trades with precision and without hesitation. If you can get a control of this aspect of trading and have the confidence to trade the events then you’re truly set up to make huge capital advances.

After all it is these economic releases which really direct the currencies. These are the same economic releases that central banks formulate policy around. So by following the releases and trading them you not only know what’s going on with regards central bank policy but you’ll also be building your capital at the same time.




Now to be truly successful you need an extremely comprehensive capital management system that not only protects you during periods of uncertainty but also pushes you forward to experience capital expansion. This is your entire business plan so it’s important you get this down pat first.

Our stringent capital management system perfectly encompasses your risk to rewards ratios, capital controls as well as our trade plan – entry and exits. This way when you’re trading, all your concerned about is finding entry levels. Having such a system in place will also alleviate the stresses of trading and allow you to go about your day without spending endless hours monitoring the market.

I can tell you most traders at banks spend most of the day wandering around the dealing room chatting to other traders or going to lunches with brokers. Rarely are they in front of the computer for more than a few hours. You should be taking the same approach. If you understand the technical and fundamental aspects of the market and have a comprehensive professional capital management system then you can.

From here it just takes a simple understanding of the key strategies to apply and where to apply them and away you go. Trust me you will experience more capital growth then you ever have before if you know how the bank traders trade. Many traders have tried to replicate their methods and I’ve seen numerous books on “how to beat the bankers”. But the point is you don’t want to be beating them but joining them. That way you will be trading with the market not against it.

So to conclude let me say this: There are no miraculous secrets to trading forex. There are no special indicators or robots that can mimic the dynamic forex market. You simply need to understand how the major players (bankers) trade and analyse the market. If you get these aspects right then your well on the way to success. 

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How to Profit with Forex Trading

Forex profit is an idea that has been sold around the internet to people looking for easy answers to their money problems. It's elusive to most forex traders though because everyone is looking for profit at high speed. Sometimes forex profit can come quickly, but more often than not, it takes planning and patience.

It's as simple as that.

Planning
Trading takes planning, that is just common sense. It is common sense that is usually thrown out the window in the search for fast forex profits. You have to plan your trades ahead of time, and then execute them according to your plan. The more you change your plan, the more you end up in trouble, and the less likely that elusive forex profit will end up in your pocket.

Patience
Patience is the number one key to achieving forex profit. Patience combined with careful risk management will allow you to ride through poor entries and other minor forex mistakes. Sometimes profit will come fast and other times it will take some time. If you open each trade prepared to wait for the profit to come, you will be more successful 

While it's true that in forex you can trade using whatever chart time frame you want to use, it's better to use a longer time frame as you point of reference. For forex, the daily and the weekly charts are really stable for beginners.

Look at the daily chart and plan your trades in the direction of the daily trend, set a stopthat would be triggered if the price changed direction enough for you to feel convinced that the trend was over. There is no way to predict this for sure, it's really just a safety precaution.

There are three ways to play this trade from here.

1. You can set a take profit order for an easy target on the daily chart of 100 pips
2. You can look at the daily chart over a wide range of days and look for the next support or resistance area to set a take profit
3. You can set your stop to be a trailing stop that will lock on profits as the trade progresses

No matter which method you choose, this type of trading will take some patience. Forex traders, particularly beginners are prone to getting nervous if a trade doesn't go their way immediately, or if the trade gets into a little profit they get itchy to pull the plug and walk away with a small profit that could have been a large profit.

If you have set your stops and you are trading with prudent risk managment, you can just allow the trade to develop until stop or profit.

Rinse and repeat and you have yourself a forumla for making forex profit. It's all a game of averages. You are going to lose some trades and you are going to win some trades. Using the laws of probability will tip the scales in your favor as long as you follow the rules and think carefully.

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What I Feel on Risk, Fed Timing and Greece Versus What I Trade

Talking Points:

• What we 'feel' about important economic, social and financial topics should not dictate how we trade

• Events can unfold irrationally and the consensus doesn't always reflect our views

• Trade analysis should be focused on what 'may' happen rather than what we feel 'should' happen

Want to develop a more in-depth knowledge on the market and strategies? Check out the DailyFXTrading Guides we have produced on a range of topics.

Negotiations between Greece and its creditors seemed to progress Monday, and market opinions flew. Some believed the headway would be another failed effort, others opined this was the key to a definitive resolution but most believe they know what the parties 'should' do. Each person has an opinion on how issues - economic, financial, political, etc - should be dealt with. However, that should not interrupt a well-thought out trading evaluation. The markets - and life - often play out irrationally with painful decisions handed down on a regular basis. Positioning for how things 'should' be would therefore put us often in conflict with how they actually are. Greece, risk trends and Fed forecasts are among the most popular topics in the FX market where opinions weave into trading analysis. We discuss these particular themes and how we should evaluate them in trade potential in today's Strategy Video.

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Crude Oil Range-Bound, SPX 500 Chart Hints at Downturn Ahead

US DOLLAR TECHNICAL ANALYSIS – Prices moved higher as expected after producing a bullish Morning Star candlestick pattern. A daily close above the 38.2% Fibonacci expansion at 11888 exposes the 50% level at 11937. Alternatively, a reversal below the 23.6% Fib at 11829 clears the way for a test of the 14.6% level at 11792.

** The Dow Jones FXCM US Dollar Index and the Mirror Trader USD basket are not the same product.

S&P 500 TECHNICAL ANALYSIS – Prices may be preparing to turn lower as negative RSI divergence hints at ebbing upside momentum. A turn below trend line resistance-turned-support at 2099.10exposes the channel floor at 2085.40. Alternatively, a push above the 2127.60-37.10 area (May 19, June 18 highs) targets channel top resistance at 2155.00.

GOLD TECHNICAL ANALYSIS – Prices continued to push lower after erasing last week’s post-FOMC advance. From here, a break below the 50% Fibonacci expansion at 1170.86 exposes the 61.8% level at 1162.64. Alternatively, a move above the 38.2% Fib at 1179.07 targets the 23.6% expansion at 1189.24.

CRUDE OIL TECHNICAL ANALYSIS – Prices broke support guiding the recovery from mid-January, suggesting the longer-term down trend is resuming. From here, a break below the 38.2% Fibonacci retracement at 60.27 exposes the 50% level at 57.39. Alternatively, a move back above the trend line support-turned-resistance at 63.88 eyes the 23.6% Fib expansion at 66.69.

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