How You Make Money Trading Forex

In the FX market, you buy or sell currencies. Placing a trade in the foreign exchange market is simple: the mechanics of a trade are very similar to those found in other markets (like the stock market), so if you have any experience in trading, you should be able to pick it up pretty quickly.

The object of Forex trading is to exchange one currency for another in the expectation that the price will change, so that the currency you bought will increase in value compared to the one you sold.

Example of making money by buying euros

Trader's Action	EUR	USD
You purchase 10,000 euros at the EUR/USD exchange rate of 1.18	+10,000	-11,800*
Two weeks later, you exchange your 10,000 euros back into US dollars at the exchange rate of 1.2500.	-10,000	+12,500**
You earn a profit of $700.	0	+700

*EUR 10,000 x 1.18 = US $11,800

** EUR 10,000 x 1.25 = US $12,500

An exchange rate is simply the ratio of one currency valued against another currency. For example, the USD/CHF exchange rate indicates how many U.S. dollars can purchase one Swiss franc, or how many Swiss francs you need to buy one U.S. dollar.

How to Read an FX Quote

Currencies are always quoted in pairs, such as GBP/USD or USD/JPY. The reason they are quoted in pairs is because in every foreign exchange transaction you are simultaneously buying one currency and selling another. Here is an example of a foreign exchange rate for the British pound versus the U.S. dollar:

GBP/USD = 1.7500

The first listed currency to the left of the slash ("/") is known as the base currency (in this example, the British pound), while the second one on the right is called the counter or quote currency (in this example, the U.S. dollar).

When buying, the exchange rate tells you how much you have to pay in units of the quote currency to buy one unit of the base currency. In the example above, you have to pay 1.7500 U.S. dollar to buy 1 British pound.

When selling, the exchange rate tells you how many units of the quote currency you get for selling one unit of the base currency. In the example above, you will receive 1.7500 U.S. dollars when you sell 1 British pound.

The base currency is the “basis” for the buy or the sell. If you buy EUR/USD this simply means that you are buying the base currency and simultaneously selling the quote currency.

You would buy the pair if you believe the base currency will appreciate (go up) relative to the quote currency. You would sell the pair if you think the base currency will depreciate (go down) relative to the quote currency.

Long/Short

First, you should determine whether you want to buy or sell.

If you want to buy (which actually means buy the base currency and sell the quote currency), you want the base currency to rise in value and then you would sell it back at a higher price. In trader's talk, this is called "going long" or taking a "long position". Just remember: long = buy.

If you want to sell (which actually means sell the base currency and buy the quote currency), you want the base currency to fall in value and then you would buy it back at a lower price. This is called "going short" or taking a "short position". Short = sell.

Bid/Ask Spread

All Forex quotes include a two-way price, the bid and ask. The bid is always lower than the ask price.

The bid is the price in which the dealer is willing to buy the base currency in exchange for the quote currency. This means the bid is the price at which you (as the trader) will sell.

The ask is the price at which the dealer will sell the base currency in exchange for the quote currency. This means the ask is the price at which you will buy.

The difference between the bid and the ask price is popularly known as the spread.

Let's take a look at an example of a price quote taken from a trading platform:

On this GBP/USD quote, the bid price is 1.7445 and the ask price is 1.7449. Look at how this broker makes it so easy for you to trade away your money.

If you want to sell GBP, you click "Sell" and you will sell pounds at 1.7445. If you want to buy GBP, you click "Buy" and you will buy pounds at 1.7449.

In the following examples, we're going to use fundamental analysis to help us decide whether to buy or sell a specific currency pair. If you always fell asleep during your economics class or just flat out skipped economics class, don’t worry!  We will cover fundamental analysis in a later lesson. For right now, try to pretend you know what’s going on…

EUR/USD

In this example Euro is the base currency and thus the “basis” for the buy/sell.

If you believe that the US economy will continue to weaken, which is bad for the US dollar, you would execute a BUY EUR/USD order. By doing so you have bought euros in the expectation that they will rise versus the US dollar.

If you believe that the US economy is strong and the euro will weaken against the US dollar you would execute a SELL EUR/USD order. By doing so you have sold Euros in the expectation that they will fall versus the US dollar.

USD/JPY

In this example the US dollar is the base currency and thus the “basis” for the buy/sell.

If you think that the Japanese government is going to weaken the Yen in order to help its export industry, you would execute a BUY USD/JPY order. By doing so you have bought U.S dollars in the expectation that they will rise versus the Japanese yen.

If you believe that Japanese investors are pulling money out of U.S. financial markets and converting all their U.S. dollars back to Yen, and this will hurt the US dollar, you would execute a SELL USD/JPY order. By doing so you have sold U.S dollars in the expectation that they will depreciate against the Japanese yen.

GBP/USD

In this example the GBP is the base currency and thus the “basis” for the buy/sell.

If you think the British economy will continue to do better than the United States in terms of economic growth, you would execute a BUY GBP/USD order. By doing so you have bought pounds in the expectation that they will rise versus the US dollar.

If you believe the British's economy is slowing while the United State's economy remains strong like bull, you would execute a SELL GBP/USD order. By doing so you have sold pounds in the expectation that they will depreciate against the US dollar.

USD/CHF

In this example the USD is the base currency and thus the “basis” for the buy/sell.

If you think the Swiss franc is overvalued, you would execute a BUY USD/CHF order. By doing so you have bought US dollars in the expectation that they will appreciate versus the Swiss Franc.

If you believe that the US housing market bubble burst will hurt future economic growth, which will weaken the dollar, you would execute a SELL USD/CHF order. By doing so you have sold US dollars in the expectation that they will depreciate against the Swiss franc.

I don't have enough money to buy 10,000 euros. Can I still trade?

You can with margin trading! Margin trading is simply the term used for trading with borrowed capital. This is how you're able to open $10,000 or $100,000 positions with as little as $50 or $1,000. You can conduct relatively large transactions, very quickly and cheaply, with a small amount of initial capital.

Margin trading in the foreign exchange market is quantified in “lots”. We will be discussing these in depth in our next lesson. For now, just think of the term "lot" as the minimum amount of currency you have to buy. When you go to the grocery store and want to buy an egg, you can't just buy a single egg; they come in dozens or "lots" of 12. In Forex, it would be just as foolish to buy or sell 1 euro, so they usually come in "lots" of 10,000 (Mini) or 100,000 (Standard) depending on the type of account you have.

For Example:

• You believe that signals in the market are indicating that the British Pound will go up against the US dollar.
• You open one lot (100,000), buying with the British pound at 1% margin and wait for the exchange rate to climb. When you buy one lot (100,000) of GBP/USD at a price of 1.5000, you are buying 100,000 pounds, which is worth US$150,000 (100,000 units of GBP * 1.50 (exchange rate with USD)). If the margin requirement was 1%, then US$1500 would be set aside in your account to open up the trade (US$150,000 * 1%). You now control 100,000 pounds with US$1500. Your predictions come true and you decide to sell.
• You close the position at 1.5050. You earn 50 pips or about $500. (A pip is the smallest price movement available in a currency).

Your Actions	GBP	USD
You buy 100,000 pounds at the GBP/USD exchange rate of 1.5000	+100,000	-150,000
You blink for two seconds and the GBP/USD exchange rate rises to 1.5050 and you sell.	-100,000	+150,500**
You have earned a profit of $500.	0	+500

When you decide to close a position, the deposit that you originally made is returned to you and a calculation of your profits or losses is done. This profit or loss is then credited to your account.

We will also be discussing margin more in-depth in the next lesson, but hopefully you're able to get a basic idea of how margin works.

Rollover

No, this is not the same as rollover minutes from your cell phone carrier! For positions open at your broker's "cut-off time" usually 5pm EST, there is a daily rollover interest rate that a trader either pays or earns, depending on your established margin and position in the market. If you do not want to earn or pay interest on your positions, simply make sure they are all closed before 5pm EST, the established end of the market day.

Since every currency trade involves borrowing one currency to buy another, interest rollover charges are part of forex trading. Interest is paid on the currency that is borrowed, and earned on the one that is bought. If a client is buying a currency with a higher interest rate than the one he/she is borrowing, the net differential will be positive (i.e. USD/JPY) - and the client will earn funds as a result. Ask your broker or dealer about specific details regarding rollover.

Also note that many retail brokers do adjust their rollover rates based on different factors (e.g., account leverage, interbank lending rates). Please check with your broker for more information on rollover rates and crediting/debiting procedures.

Don't know what the interest rates are for each currency? Here is a chart to help you out. Accurate as of 04/19/09.

Demo Trading

You can open a demo account for free with most Forex brokers. This account has the full capabilities of a "real" account. Why is it free? It's because the broker wants you to learn the ins and outs of their trading platform, and have a good time trading without risk, so you'll fall in love with them and deposit real money. The demo account allows you to learn about the Forex markets and test your trading skills with ZERO risk.

YOU SHOULD DEMO TRADE FOR AT LEAST 6 MONTHS BEFORE YOU EVEN THINK ABOUT PUTTING REAL MONEY ON THE LINE.

I REPEAT - YOU SHOULD DEMO TRADE FOR AT LEAST 6 MONTHS BEFORE YOU EVEN THINK ABOUT PUTTING REAL MONEY ON THE LINE.

"Don't Lose Your Money" Declaration

Place your hand on your heart and say...

"I will demo trade for at least 6 months before I trade with real money."

Now touch your head with your index finger and say...

"I am a smart and patient Forex trader!"

9 Businesses You Can Start In Your Pajamas in 2010

Internet Marketing –– Jason Sadler, IWearYourShirt.com

Franchising –– David and Stuart Pikoff, Games2U

Online Advice –– Amanda Steinberg, DailyWorth

Insurance –– Chris Jordan, Atlanta Insurance Live

Personal Fitness –– Franklin Antoian, IBodyFit.com

Specialty Travel –– Deborah Mayer, Shop Around Tours

Government Contracting –– Jim Anderson, LeadDog Consulting

Children's Wholesale and Retail –– Michelle Tunno Buelow, Bella Tunno

Online Content Aggregation –– Michael Sitarzewski, Callisto.fm

So you've got a ton of friends on Facebook and a loyal Twitter following. Why not profit off them? Jason Sadler has found a way to capitalize on all the hype surrounding social media marketing. Three-hundred sixty-five days a year, Sadler serves as a live billboard for companies and charities on all the major social media sites. Sadler, who launched IWearYourShirt.com at the end of 2008, wears a shirt a day, and sells each calendar day according to its numerical value. On January 10, for example, a company would pay Sadler $10 to wear its shirt. He works from his home in Jacksonville, Florida, and leverages his social media following by blogging, tweeting, filming a live video show, and updating his Facebook photo, all while wearing the designated T-shirt of the day. And, yes, he will still wear your shirt to a wedding, or even if he's sick in bed. Now that the idea has taken off, Sadler has hired a West Coast counterpart -- with a whole new following -- to expand the company's marketing reach.

7 Ways to Make Money Without Actually Having a Job

Job market got you down? If applying to real-person jobs isn’t landing you the position you want, it may be time to try something different. Like offering up your body to medicine. Or selling your opinion for $50/hour. Or, easiest yet, hanging out at someone else’s house.

We’ve come up with seven ways you can make money without actually having a job. See if any of the opportunities below help you think outside the employment box.

1. House Sitting

While petsitting and babysitting generally don’t involve much down time, house sitting is a literal job: You sit in someone else’s house. For money. Sure, you have to water their plants every so often, but the rest of the time, you can relax. Just don’t break or steal anything.

Pros: Get paid to sit around in someone else’s house.
Cons: None, unless you throw a kegger while you’re there.

Pay range: $50+ per day.

2. Medical studies

Can’t sleep? Depressed or anxious? Got bunions? Chances are, someone wants to use you as a guinea pig for their latest product. Craigslist is usually chock full of opportunities in this field.

Pros: Get paid while potentially curing whatever ails you.
Cons: Nobody’s sure what the side effects are. That’s why they’re hiring you.

Pay range: $100+

3. Consumer surveys

A quick, painless way to get pennies in your cup is to fill out customer surveys for marketing research companies. Mind you, it’s going to take a lot of Internet time to turn those pennies into dollars. If time is what you have, surveys might be worth a try.

Pros: Low effort.
Cons: Low pay. Scammers abound in this industry.

Pay range: Usually a few dollars per survey.

4. Homestays

Students around the world come to the US to study and learn English. Many of these students choose to live with American families to get to know the culture better. Those host families, meanwhile, get paid a stipend to accommodate that student.

Pros: Get paid to have a student live with you and talk to them in English.
Cons: You may hate the student.

Pay range: $500+/month

5. Egg/sperm donation

Image: Yale Medicine

Sperm donation doesn’t net you as much as donating eggs does. Then again, giving sperm doesn’t require hormones, weight gain, and surgical harvesting sessions.. Call it hazard pay.

Pros: It’s easy, if you’re a guy.
Cons: It’s hard and painful, if you’re a woman.

Pay range: Sperm: $100—if you’re lucky. Eggs: $1,000-$30,000+

6. Focus groups

Image: Behavior Research

Research departments will pay you hundreds of dollars to sit around for a few hours and discuss topics of their choosing. The pay per hour can be good, if you’re selected.

Pros: High pay for little time.
Cons: You might not get selected. Watch for scammers.

Pay range: $50+/hour

7. Surrogacy

If you’ve successfully carried a child to term once before, why not do it again–for pay? Lots of couples want you to carry their precious bundle, often for close to $10,000.

Pros: Get paid to for living your life–with someone else’s bundle of joy in your stomach.
Cons: It’s someone else’s bundle of joy.

Pay range: $7,000+

Bank of America sees $194m loss

Wall Street giant Bank of America has reported a net loss of $194m (£120m) in the last three months of 2009.

That compared with a loss of $1.8bn in the same period a year earlier.

It added that it had repaid the $45bn government bail-out money it had received, but taking the impact of this into account, it made a loss of $5.2bn.

Meanwhile, Morgan Stanley said it made a profit of $413m in the fourth quarter, helped by a return to profit in its investment banking business.

A year ago, the bank reported a $10.5bn loss, the bulk of which came from investment banking, which made massive losses at the height of the financial crisis.

Morgan Stanley also said it had set aside $14.4bn in compensation expenses for 2009 - a 31% increase on the previous year.

Earlier this week, fellow US bank JP Morgan Chase reported a profit of $3.3bn, while Citigroup said it made a $7.6bn loss in the final quarter.

'Disappointing' loss

For the whole of 2009, Bank of America made a net profit of $6.3bn, an increase on the $4bn profit it made in 2008.

The bank also said it had set aside $10.1bn to cover bad loans during the quarter.

"While it's disappointing to report a loss for the fourth quarter, there were a number of important accomplishments worth noting," said chief executive Brian Moynihan.

"First, we repaid the American taxpayer, with interest, for the Tarp [Troubled Asset Relief Program] investment.

"Second, we have taken steps to strengthen our balance sheet through successful securities offerings. And third, all of our non-credit businesses recorded positive contributions to our results."

'Strange creature'

Bank of America said paying back the Tarp money cost it $4bn.

It received the money after agreeing to buy Merrill Lynch in September 2008 in a deal worth $50bn.

The chief executive at the time, Ken Lewis, was widely criticised for going ahead with the purchase of Merrill, and he left the bank at the end of 2009.

The bank was now a "strange creature", said Stephen Pope, chief global equity strategist at Cantor Fitzgerald.

"You have got Merrill Lynch on the investment banking side... [providing] probably healthy revenues from bond underwriting and trading.

"However, Bank of America is probably still facing difficulties of impairment charges against outstanding commercial and consumer debt."

Bank of America's credit cards division made a quarterly loss of $1bn, while its mortgage business lost $993m.

US Consumer prices fall for the first time in 50 Years

Consumer prices fall in 2009

The annual decrease is the first in more than 50 years. Month to month, a slow rise in the inflation indicator increases the likelihood that the Fed will keep interest rates low.

growing worries about a future surge in inflation, consumer prices barely budged last month and fell for all of 2009 -- the first annual decline in more than half a century.

The latest report on the consumer price index, released Friday by the Bureau of Labor Statistics, increases the likelihood that Federal Reserve officials at their next meeting later this month will stand pat on their policy of setting interest rates at near zero for "an extended period."

In recent weeks, there have been increasing signs of a split at the Fed over how soon the central bank should begin tightening credit and monetary policy to avoid a future outbreak of inflation. Some officials want to start raising rates relatively soon, while most see no hurry to change course amid double-digit unemployment and little growth in prices.

And there appears to be little or no support for a pull-back in the immediate future.

"The Fed is correct in its analysis of inflation, and should be more worried about unemployment than inflation at this stage of the game," Diane Swonk, chief economist at Mesirow Financial, wrote in a research note.

In December, consumer prices edged up just 0.1% from November, and they were up 2.7% from a year earlier. Stripping out food and energy prices, which tend to be volatile, consumer prices were up a modest 1.7% over the 12-month period.

Averaging all the months last year, the government said, the price index fell 0.4% from 2008. The last time this measure dropped was in 1955 when Dwight D. Eisenhower was president and Ray Kroc opened his first McDonald's restaurant.

Back then, unemployment was below 5% and the economy was creating hundreds of thousands of jobs a month.

Last year was a different story. The fall in the consumer price index largely stemmed from lower oil prices and underscored the deep recession that also held down wages and led to outright price declines for certain goods, such as personal computers and used cars, as well as for services such as lodging.

"It's good news for consumers; inflation was low," said Nigel Gault, an economist at IHS Global Insight. But the bad news, he said, was that fewer people in America had jobs, and wages overall barely kept pace.

Gault reckons this year won't be any better for consumers. He sees overall prices rising 1.7% this year, and core inflation, which excludes food and energy, turning up just 1.5%. But wages will probably increase at a similarly modest rate, meaning most consumers won't see gains in their buying power.

Chinese online revenue up 30% in 2009

Online revenue generated in China surged by more than 30% to 74.3bn yuan ($10.9bn, £6.7bn) in 2009, a research firm has said.

iResearch predicts that online earnings in China from advertising, games, shopping and other activities will surge 51% to 112.3bn yuan this year.

Separately, a report said that Google has begun talking to China about not filtering content on its search engine.

It refused to confirm this, saying it "won't be giving a running commentary".

"We've said already that we will be taking a new approach in China," a Google spokesman in London said.

"We will be discussing with the Chinese authorities the basis on which we could operate an unfiltered search engine within the law, if at all."

Chinese dilemma

On 12 January, the company said in its blog that Chinese human rights campaigners using its Gmail service had been hacked.

It said it would hold talks with the Chinese government to stop censoring its search engine, and would leave the country if an agreement could not be reached.

China has said that foreign internet firms are welcome to do business there "according to the law".

Google currently holds about one-third of the Chinese search market, far behind Chinese rival Baidu, which has more than 60%.

China has more internet users - about 380 million - than any other country and is a lucrative market.

When Google launched google.cn in 2006, it agreed to censor some search results - such as the 1989 Tiananmen Square protests, Tibetan independence or Falun Gong - as required by the Chinese government.

The Chinese business magazine Caijing reported that Google has already moved some of its Beijing-based employees to Hong Kong.

Save Cash, Buy a Clunker

Just when you thought that America’s supply of cheap cars fell victim to Cash for Clunkers, a new website specializing in heaps costing less than $1,000 showcases prime examples of automotive detritus — some of which are still capable of highway travel.

Cars for a Grand is the brainchild of online entrepreneurs Chris Hedgecock and Jorge Gonzalez, the same guys behind Zero Paid. The site allows for individual users to post cars for sale, and scours eBay and classified ads for the best buckets of bolts. To promote the site, the founders bought a 1974 Pontiac LeMans for $900 and drove it across the country last summer.

Gonzalez says the site is popular with people who just don’t have a lot to spend, or who don’t want to spend what they do have on a car. “With gas prices and the economy the way it is, people are looking for creative ways to trim the fat,” he said.

A quick look at the site proves that cost-conscious doesn’t have to mean boring.

A bitchin’ Camaro on sale for less than the down payment on a new one proves that money can’t buy class, and short money buys even less of it. If you want to let the world know you drive a BMW, you can snag a high mileage ‘91 5-series for less than a year’s worth of internet dating fees. And, for the mechanically inclined, there are plenty of steaming heaps of coolant leaks, melted wiring harnesses and salvage titles.

Even woefully underpaid automotive bloggers can afford a $1,000 mid-’80s Nissan 300ZX in less-than-stellar condition — which we’re seriously considering. After all, a bonus of not paying $10k for a cherry example of a classic car is that you can drive it like you’re a teenager.

We’ve owned plenty of beaters throughout the years and they’ve all served us well. In fact, a ‘91 Volvo 240 with missing body trim and intermittent brake lights is currently rusting away in this writer’s driveway. Grand total? $600. It actually cost more to register and insure it for a year. It ain’t pretty, but it’s a perfect around-town car for a girlfriend who prefers public transportation.

Let us know about your favorite sub-$1,000 car. Maybe it’s the vintage VW that got you through grad school, or the clapped-out Taurus that’s still in your garage sitting next to the $4,000 LeMond you ride to work every day.

Photo: Flickr / Erica Marshall

Read More http://www.wired.com/autopia/2010/02/save-cash-buy-a-clunker/#ixzz0eXVolgvq