Understanding how to make money from forex for beginners

The forex market provides numerous trading opportunities. Keep reading to learn how to make profits by taking advantage of these opportunities daily.

Forex trading involves the exchange of one currency for another. This could be through spot trading on brokers like oanda.com or futures and forward contracts.

The idea is to sell weak currencies and buy strong ones simultaneously. Therefore, as a trader, you have to determine whether a currency would weaken or strengthen by using different forms of analysis.

How to analyse the forex market

There are different ways of analysing the currency market, and as a new trader, you have to determine which strategy works best for you. There are two primary forms of analysis.

1 Technical analysis

Technical analysis is a form of analysis that uses past price behaviour to predict future prices by monitoring specific patterns that repeat. This involves examining price charts using trading indicators, technical theories and chart patterns.

It's a great way of determining the best entry and exit points for your trades. Learning technical analysis is regarded as a relatively easy task and one of the simplest parts of learning to trade.  

2 Fundamental analysis

This style of analysis takes a more holistic approach to the study of the various factors that influence currency prices. These include interest rates, news and economic data that affect multiple economies.

You have to examine the macroeconomic and microeconomic factors that influence currency supply and demand and the political and economic stability of a nation.

These factors will help you determine whether a currency's value is poised to increase or decrease.

Five steps to making money from forex

Now that you understand how the forex market works, let's discuss how to make profits and become a profitable trader.

1 Learn the basics of forex

The first step to succeeding at forex trading is to learn as much as you can about foundational forex concepts. These include terms like pips, leverage, stop loss, take profit, spread, limit orders, etc.

Fortunately, there are many resources to learn from - some of which are entirely free. You can use ebooks, video lessons, YouTube videos, paid or free membership programmes and courses, just to mention a few.  

2 Make sure your strategy is profitable

Once you've learned the basics of trading, you need to learn a strategy that allows you to make profits consistently. This means that it has both winning and losing trades, but the wins are enough to mitigate the losses.

Having a profitable strategy gives you an edge and ensures that your trading capital will grow over time as long as you follow your rules and control your emotions. You can test your strategy through backtesting - using past price data to determine its win rate and profit potential. 

3 Control your emotions

After learning to analyse the charts, you must understand and master your trading psychology. Trading psychology refers to the emotional components of trading, which include our thoughts and beliefs about;

❖     Wins and losses

❖    Trading plans

❖    The nature of technical analysis

❖    Risk management

❖    Money management

Forging healthy trading psychology helps you grow above the damning influences of emotional trading decisions caused by greed and fear.

Controlling your emotions helps you follow your trading plan and make the most of your trading strategy.

To improve your trading psychology, endeavour to define your risk before entering every trade. Your risk per trade can be defined in terms of percentage using a position size calculator. Professional traders risk 0.5% to 2% per trade. 

4 Keep practicing

No one really masters trading. You have to keep learning and practicing to refine and fine-tune your strategy over time. Practise by backtesting and executing trades on your trading platform. This helps you easily recognise trade setups in live market conditions.

You can practice on a demo trading account to help you simulate a live trading environment. Most regulated brokers will allow you to open a demo trading account for free.

5 Execute trades

After learning to trade and manage your emotions, you can execute trades on a brokerage platform. Make sure you deal with a regulated broker because this secures your interests and trading capital.

The forex market indeed provides many opportunities for traders and investors to profit from. If you're serious about trading, you should follow these five steps to becoming a profitable trader.