How Does Forex Trading Work? Is It A Good Source of Passive Income?
An Overview of Forex Trading
How does forex trading work? As a Forex trader, you invest in a FOREX pair. For example, a pair like the EUR/USD or EUR/JPY.
You are essentially buying one currency and selling another at the same time.The exchange rate stands for the purchase price between the two currencies.
The basic principle behind forex trading is to “buy” if you believe that the value of the base currency will increase. If you think that the value of the base currency will decrease then you “sell.”(The base is the first mentioned currency in a pair.)
Can you make money with forex trading and is it a good source of passive income?
Whilst, it may sound fairly simple, there are factors to consider that influences your buying or selling decisions. (More about that later).
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Facts About Forex Trading
Forex trading has become a popular investment choice. Here are some interesting facts for you to read about.
- The market has a daily turnover exceeding 3 trillion dollars!
- The market is controlled by global market forces, where supply and demand are constantly taking place
- Over 90% of traders lose their investment within the first 6 months
- Successful traders don’t overtrade when they are losing
- Successful traders trade small amounts and allow the gains to compound over time
- Banks are one of the major players in the forex market
How do You Get Started On Forex Trading?
If you are thinking of getting into the forex trading game, there are a couple of ‘house rules,’ to get yourself acquainted with.
1.Do not get into it, with unrealistic goals
Many people are under the impression, that trading with forex, presents an opportunity for quick and easy gains.
The truth is that you’ve got to have a strategy in place. The golden rule with forex trading is to: START SMALL, START SIMPLE.
In fact, the less complicated your strategy, the better your chances of succeeding. So, analyze the markets and make small trades. Most importantly, do not have the mindset that you will make quick returns initially.
2. Do not get greedy
Psychologically you need to be strong.
Discipline yourself and do not make more than a limited amount of pips on your trades, especially when you are first starting out.
As soon as you reach your limit, then be emotionally strong to switch off your computer and call it a day.
This is vital if you want to achieve long-term success in forex trading. You simply cannot do trades without knowing what is going on around you.
Your first step in getting started is by registering with a legitimate broker. Choose carefully.
Look at the testimonials. Check out their trade history, licenses and track record. What are their fees like, stuff like that?
I highly recommend that you chose a broker that offers you a demo account to do a paper trade on their platform.
Starting off, you may have fear and will not be confident in your trading skills. Having a demo account is crucial to allow you to make “safe” trades and to develop your own method of trading going forward.
4. Give Yourself Time
This may be a hard one, but if you are hasty, you can end up losing a substantial amount of your money.
There are certain aspects to consider such as assessing one’s risk when trading, should you do automated or manual trade, and even learning how to follow a trend. All this takes time to learn.
In addition, you need to get yourself accustomed to charts, indicators and economic data that influence the ‘value’ of the forex pair.
It’s about practicing and mastering concepts and strategies which can take months or even longer!
Be in it for the long run!
Can You Make Money With Forex Trading?
The fact is that the forex trading market is the largest financial market in the world.
It certainly can be an exciting venture to get into and there are people who are making money with it.
Naturally along with the success stories, you will also hear of people who have suffered big losses in the initial stages and end up leaving this trading.
What about all the YouTube videos that promise you the inside scoop on Forex?
Just type in,’Can you become a successful forex trader’ and see all the results that show up.
Some claim that you can become a millionaire with a small investment. Or, that they have the best tips to help you to become a successful trader overnight!
To be honest with you, I did not bother watching any of them. For one, too much information can overcomplicate matters, as you need to keep it simple.
Secondly, some of these videos may direct you to sign up with an unreputable brokerage firm.The last thing that you need, is to end up falling into an online scam or someone’s get rich ploy.
I believe that you can make money with forex, and if you can find a mentor, it’s all the better.
If you can find someone, who is already trading successfully and reaping profits, it can save you some time.
There are ‘online’ vendors like E-toro, that allow you to follow successful traders and execute their trades.
Bottom Line: If you are willing to educate yourself and are able to assess the market, you can become a success.
It is just like any other business, it takes time and experience to become good at what you do!
The advantage is you have access to a demo account. It allows you to acquire, develop and sharpen your trading skills.
Master, understand and develop a strategy that works for you. Then when you are confident, start with real money!
Is Forex Trading a Good Source of Passive Income?
Some of the benefits of forex trading are that;
- It is accessible 24hours a day, 5 1/2 days a week, from anywhere in the world,
- You can set your own hours,
- You work from home,
- You have no overheads as compared to other business models.
But is forex trading a passive income business?
According to Wikipedia,
Passive income is income resulting from cash flow on a regular basis requiring minimal to no effort by the recipent to maintain it.
What do you think, is forex trading a form of passive income?
I think that as a forex trader, whether you’re assessing economic data, or signal interpretation, or pattern recognition, you have to constantly be ACTIVE to make successful trades.
You have to be present to know when to pull out or jump in on a trade.
I do not think that it is a true passive income system, where you can leave your computer and come back with gains.
Is Forex Trading for You?
How does forex trading work? Now you know what it is all about.
The big question is,
…does it sound appealing to you? Is it something that you are ready to try?
We all choose different paths to get to our destination. Some people choose stocks or forex, whilst other folks choose blogging, or e-commerce or even affiliate marketing to reach their goals.
Some allow you to earn passively, and with others, you need to be active to make your profits.
The one thing that all these models have in common, is that you need to invest some time and hard work.
I chose affiliate marketing. A business model that allows one to earn residual commissions once one’s website is set up.
I knew nothing when I started back in 2015, but today I have built a website, that earns me a passive income.
I was fortunate to be introduced to an amazing teaching platform with all the necessary tools and training to help me to earn.
Should you be interested, in learning how to start affiliate marketing, click on the link below.
I hope that this article has helped you out. I would love to hear which direction you would choose.
If you need help with anything or have something on your mind please use the comments section below.
I will get back to you as soon as I can.
It was awesome to have your company.
Kind Regards and Take Care
Roopesh, from Passive Income for All