How you can make money with forex

To make money with forex, it is a bit of a gamble: the trader must predict that a currency will either rise in value or fall in value against another currency. So he buys the currency he feels will gain value and simultaneously sells the one he feels will lose value against the currency he has bought. After some time, if the trade plays out as he has predicted, he re-exchanges the two currencies in view and closes the trade.

Traders can buy different amounts of currency to trade. In forex, the size of the currency a trader purchases is measured in lots.
– 1 lot is worth $100,000.
– 1 mini-lot (one-tenth of a lot) is worth $10,000.
– 1 micro-lot (one-tenth of a mini-lot or one-thousandth of a lot) is worth $1,000.

The trader can purchase any contract size depending on the amount of money he has available to him. Forex is a leveraged market. Many traders may not have up to $100,000 to trade at once, and so a system has been developed to get the brokers to match the trader’s equity. So all the trader needs to come up with is a small fraction of the trading amount as collateral for the trade. If the trade ends up a winner, the broker’s equity is returned on closing the trade and the trader keeps the balance. If the trade loses, the trader’s equity is reduced by the loss amount. If the loss in an active trade threatens the broker’s equity, an instruction is sent to the trader to put in more money or the trade is closed automatically (margin call).

The process of opening and closing trades in this manner is repeated several times a day (intraday traders or scalpers) or week/month (position and swing traders). The frequency of trading is determined by the trader’s trading style.