How do I make money from trading Forex?
Making money trading forex involves buying lower and selling higher or selling higher and buying back lower, using leverage means that you are able to deposit a smaller amount of money to achieve the same buying power as you would have if your bought and sold the currencies outright.
In this example Susan deposits $5,000 into her forex trading account and nominates the leverage on her account to be 1:100. As a result of leverage Susan’s buying power on her $5,000 deposit becomes $500,000. Susan decides to BUY 0.1 lots of the AUD/USD par at a price of 0.99802, 3 days later the price of the AUD/USD is 1.04069 and Susan decides to close her position. Susan’s profit is calculated as (1.04069 – 0.99802) 426 pips. As Susan opened a position of 0.1 lots Susan made a profit of $426 or $1 per pip.
Of course should the AUD/USD moved against Susan below the opening price of her trade to a level of 0.97802 Susan would have incurred a loss on the trade of (0.99802 – 0.95542) 426 pips. As Susan’s positions size was 0.1 lots Mary would have incurred a loss of $426 or $1 per pip.