Money determines our lives. Whether paying rent, as a salary, or when consuming: you regularly come into contact with money. And this is now available in various forms such as cash, as an amount in your account, regularly available via debit or credit card, and even completely digitally via cryptocurrency.
However, money is not the same as money, so other means of payment are used all over the world. The different currencies, also called foreign exchange, must be constantly exchanged for this.
Even if you may already know this process from your last holiday trip, states, banks, commodity traders and companies must also carry out corresponding conversions. So real trading has emerged around the different foreign exchanges. But can you also make money with foreign exchange trading?
On this page, you will now learn how you can also benefit from foreign exchange trading and what needs to be considered.
Earn money with foreign exchange trading: focus on price developments
There is constant movement in foreign exchange trading and the numerous currency pairs, especially the so-called majors. Supply and demand also determine the price development here. There are numerous factors that influence the need and supply of foreign exchange. Currency pairs are considered up to the fourth decimal place.
This last digit is also called Pip and is the smallest unit in Forex. When making money with foreign exchange trading, you will learn that you declare your profits and losses in pips. Forex is regularly traded with so-called standard lots. Behind this are 100,000 units of a corresponding currency. This is undoubtedly also necessary since you want to benefit from the smallest changes in the pip range.
In order to reduce the entry barrier, the best Forex brokers offer leverage, also called leverage. You can increase your capital by a certain factor, for example, for nextmarkets it is 30:1.
Make money through derivatives with foreign exchange trading
As you have undoubtedly seen from the above example, despite leverage, it still requires a certain amount of capital to trade Forex. And even then, the profits per trade, especially in day trading or scalping, are still very manageable. This is because often only small changes in the amount of a few pips are taken with these procedures.
For this reason, private investors in particular rely on CFDs, Contracts for Difference. These financial products are based on the corresponding currency pair as the underlying.
However, they do not trade directly on the Forex market, but on the derivative. Accordingly, you have lower entry barriers and can still make a decent profit through leverage. No wonder, then, that private investors in particular primarily with CFDs act on the market.
Above all, your online broker (forex trading license) should offer the widest possible selection of currency pairs, at least the majors should be available to enable you to earn money with foreign exchange trading.
Making money with foreign exchange trading: the role of the US dollar
Surely one fact has already caught your eye with the list above: Without the US dollar, nothing seems to be going on Forex. Although this is not entirely correct, it can undoubtedly be stated that the American dollar plays a special role.
This can be explained by the fact that for many investors, the US dollar is a kind of safe haven. You leave your account balances in this currency and then change from the US dollar to the required motto – also for trading.
In addition, almost all commodities in the world are traded on commodity exchanges in the US dollar. This has been giving the American currency huge advantages for decades and is certainly the strength of the motto.
For you as an investor, it is always important to take a look at the US dollar and the Forex calendar when investing in foreign exchange, as there are a lot of correlations.