How can you earn money on Forex?
This matter concerns a lot of people, and almost every participant of Forex market, even with little experience, would definitely say that it’s possible …
To understand how the income is earned, let’s consider the example of simple transaction.
Let’s suppose that at the 16.00 by Moscow time the quote for USD/EUR currency pair is 1.3000. It means that the offered price for 1 EUR is 1.30 USD. We know that at this moment of time Hurricane Katrina takes place on the territory of USA, so we can assume that American currency USD will fall down and so quote (to put it in more simple way, the price) of EUR\USD currency pair will increase…
So we decide to buy EUR for USD at the current price, 1.3000. Standard transaction volume on Forex market is 1 lot, which equals to 100000 units of base currency, in our case it is EUR, so we have bought 100000 EUR for 130000 USD.
Our forecast proved true, and as a result of hurricane the price has drown to the 1.3200, but then the hurricane ended, and the quote will probably at least stop growing, so we should close transaction. After that, we make reverse transaction and sell EUR we have previously bought for dollars, but at more profitable higher price 1.3200.
Let’s see what we have gained as a result: The price has grown by 200 points, so our income in absolute terms equals to 2000 USD. In order to count how much it is percentage terms, we need to know the volume of our own funds before deal. To make it easier to understand, let’s say that in order to observe the basic rules of risk management, minimum amount of funds necessary for making a transaction of 1 lot must be at least 10000 USD with nominal leverage 1:100. This means that as a result of transaction described in our example we’ve earned income of 20%.
Don’t forget that it’s just an example – the simplest self-illustrating mechanism of profit generation. In realty quote is simultaneously affected by many factors, and the ability to properly evaluate them eventually determines the success of your trading.