How To Make Extra Money with Forex

Forex trading is one of the most popular ways to invest outside of the stock market.  In fact, Forex trading is actually the largest market in the world, with trillions of dollars being traded everyday around the world.  Since anyone can participate in international Forex trading, here is what you need to know right now to make extra money with Forex.

What is Forex Trading

The Forex market is the decentralized market for trading and exchanging currencies (i.e. foreign exchange, or Forex).  This market originally started as a way for companies and governments to exchange currencies for different purposes, usually international trade.  By being able to trade currencies, businesses in the United States can buy products abroad using their local currency, making trade easier.

Forex trading has become popular because the Forex market is the largest in the world, and it trades 24 hours a day 5 days a week.  This gives traders a much different perspective than someone who invests in the US Stock market during the day.

However, Forex trading can also be risky because of how it is conducted.  In general, Forex trading has very low margins, because prices of currencies change by fractions of pennies each day.  To make up for this, traders employ leverage, meaning that $1 of actual money can trade $100 or more of real money.  This amplifies the small changes in the Forex market, but it can also amplify big changes, and wipe out profits unexpectedly.

Making Money with Currency Values

One of the primary ways that traders make money with Forex is to speculate on changes in currency values.  For example, if you think that the value of the Euro will drop in relationship to the US dollar, you could go long the dollar relative to the Euro.  You could also go short the Euro relative to the dollar.

In Forex, you always buy one currency in exchange for another, since it is a trade.  These are called currency pairs.  There are many common currency pairs that traders trade each day, but you can trade almost any currency pair in the world with a brokerage that supports it.

Making Money with Interest Rates

You can also make money with Forex trading by playing the differences in interest rates between two country’s currencies.  Almost every central bank in the world pays interest on their bonds, and the value of their currencies reflect that.  To play the “Carry trade”, what you do is borrow a currency with a low interest rate and purchase a currency at a high interest rate.

The larger the difference in interest rates between the two currencies, the more profit you can realize, especially as you use more leverage.  However, this can also be risky, because if interest rates change quickly, you may not be able to deleverage your trade without losing a lot of money on the actual principal.

All currency trading is risky, so make sure that you really do your homework before using any of these strategies to try to make extra money. A good place to start is

Good luck Penny Hoarders!