Forex trading has made many people rich: George Soros, Warren Buffett are just some of the notable people who have made a fortune from trading currencies. You can make money from forex too, but in order to do this, you need to be properly positioned for this and go about it the right way. Here are the steps to take if you want to discover how to make money from forex.
Opening an Account with a Forex Broker
In order to trade forex, you need an account with a forex broker. Opening an account will require that you select a good broker, fill the account opening form online, attach documents to prove your identity and place of residence, and then fund the account. You need to be extremely careful here because a poor selection of brokers can start you off on a very bad footing. First, you need to select the right kind of broker.
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There are basically two types of brokers; market makers and ECN brokers. You are much better off going with an ECN broker. It is more expensive though in terms of initial trading capital as well as cost of transactions, but it is worth every penny in the long run because the Electronic Communication Network (ECN) environment provides you with the most transparent environment for trading.
For account activation, make sure you have an international passport and a utility bill/bank statement as proof of address.
You need to have an acceptable payment method for funding your trading account and withdrawing from your account. Many brokers allow traders to use credit/debit cards, Paypal, E-wallet services such as Moneybookers and wire transfers to deposit and withdraw funds from their accounts.
Whichever method you use, you need to make sure that you keep that method secure. Most of these methods will require online usage, so you must have the latest antivirus and internet security software installed on your computer. Make sure you are careful about the sites that you visit.
Funding Your Forex Account
You will need to fund your account with cash. Yes, you need cash to make cash in forex trading. Even though many sites claim you can start forex trading with as little as $100, the truth is that the same effort used in trading $100 is the same effort used in trading $10,000, and of course, you stand a better chance of making more money with $10,000 than with $100. So traders should as much as possible, try to lay their hands on as much money as they can to enhance their chances of generating more profits.
Learning How to Trade Currencies
Money and a trading account all count for nothing without the necessary skill. The trader should visit online forex trading forums, forex sites and attend online webinars on various aspects of forex trading in order to gain the necessary knowledge about how to trade the markets.
It will take some time to gain forex trading knowledge; indeed it should be seen as a form of going to school. School is something that never really ends.
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How to Make Money from Forex: Key Issues
A key issue that many traders never really take time to address is how much money they intend to make from forex and how to go about it. The billionaires mentioned above are usually in positions for the long haul, but occasionally take some speculative trades when there are clear opportunities to make money (e.g. George Soros’s speculative trade in September 1992 against the British Pound).
So the trader has to decide on whether he is in it for speculation (in which case, positions will be closed out on a short term basis) or for the long term. The path the trader travels will determine how trades are made, and the risk management techniques. Trades made in a speculative manner carry greater risk.
One way a trader can decide to trade forex is to have an account for trading for the long term, and another that can be used to generate money on a weekly or monthly basis. When trading for the long haul, the trader is basically going to use the principle of compound interest to grow the account over a number of years using very low risk.
Using this technique, a trader can grow a $1000 account with 5% monthly target to at least $300,000 in about 3 years. This means that if you had only $1000 at the time of the global financial crisis in 2008 and you grew your account by just 5%, you would have hundreds of thousands of dollars as you read this. This is truly remarkable and if you can appreciate that 5% of $1000 in the first month is just $50, and that every other 5% gain is just the way $50 is to $1000, then you can appreciate the way the forex billionaires have made their money over time.
Traders need to start looking at the long term forex investment strategy in order to make real money from forex, as opposed to just trading for a few hundred dollars a month. So you can take the steps itemized above to set yourself on the path of how to make money from forex.
Guest post by Joaquin Monfort who is a financial analyst and currently works as a technical and fundamental analyst for Forex4you. He could be found blogging about forex tips, research and trading strategy on blog Inside Forex trading.