Make Money with Forex Trading Strategies

When investors trade in the Forex (Foreign Exchange) market, they have one primary goal – earn a profit. If you’re looking to get into the market, how can Forex trading strategies help you make money?

Forex Trading Basic Strategy

There are quite a few specific Forex trading strategies out there, but they come down to one overall plan – exchange one currency for another country’s currency, where the end result of market fluctuations leaves the trader with more money. Let’s look at a very limited example for demonstration purposes.

Let’s say you currently want to sell Euros, and you have two options:

1. You can sell your EUR and buy USD, or
2. You can sell your EUR and buy GBP.

Let’s also assume that one of those currencies is losing value against the Euro, and the other is increasing in value against it.

Obviously, as a trader, you would want your broker to sell your EUR and buy the currency that’s increasing in value relative to it. How do you determine that relative value? You look at exchange rates (sometimes simply referred to as “rates”).

The Role of Changing Exchange Rates in Making Money

In our example, you decide to look up the exchange rate for your EUR in comparison to both the USD and GBP. Here’s what you find:

EUR / USD – 0.801539
EUR / GBP – 1.24967

Here’s what those rates mean:

1. Purchasing USD $1000 would only cost you €801.539, whereas
2. Purchasing GBP £1000 would cost you €1249.67.

The USD has a lower value than the GBP compared to the Euro, so you can purchase more of it. However, we said one market was decreasing in value and one was increasing. Let’s say that the USD is expected to continue decreasing in value. If that’s true, investing in it now would involve a greater risk of losses.

Instead, to try to earn a profit, you would invest in the GBP now (assuming that option is expected to continue growing in value). Now let’s say you’ve purchased your GBP £1000 for €1249.67. After a few months, the exchange rate (now GBP / EUR, as your base currency being sold is the pound) is .641396. That means it will cost you £.641396 for each Euro you convert your money back to. If you spend the full £1000 previously bought, you would then have €1559.09, or a profit of €309.42.

That’s an extremely simplified version of a Forex trading strategy, and how those strategies are used to earn a profit in the foreign exchange market. More advanced strategies exist, ranging from stop-loss strategies to minimize loss risks, to taking advantage of quick trades at specific times of the day, and strategies even exist to earn a profit from currencies with decreasing values. Forex strategies can be adapted for both long-term investments and the common shorter-term speculative trades. It’s always best to discuss Forex trading strategies with your broker.