Have you been wondering how do you profit from Forex trading?

95% of traders lose their money because of bad risk management, greedy, overtrading, lack of knowledge.

With the Forex sitting as a global currency exchange market with a value of almost two trillion dollars, it is certainly understandable that you want a chunk of the profits. This is truly possible when you trade in a responsible and well-informed manner. However, if you do not prepare well and do not commit to planning in regard to the trades that you make, then you will experience the odds being against you and will be upset with the money you lose. Research indicates that two out of three people who engage in Forex trading experience a loss of their money and only a few percent of them really earn money from forex trading. This indicates that there is a need for better caution and more self-education before actively engaging in Forex trading in order to increase the opportunity to make profits in the realm of Forex trading.

How to become profitable in forex?

1. The risk of ruin is not linear in trading. The more money you lose, the harder it is to recover back your losses.

If you trade and make a loss at some moment 10% you will need 11% to recover the loss in the next positions.
If you trade and make a loss at some moment 20% you will need 25% to recover the loss in the next positions.
If you trade and make a loss at some moment 50% you will need 100% to recover the loss in the next positions.

see Table below:

I will repeat this Table a lot of times. This is the most important path to success. This is the difference between retail and pro traders. Pro traders do not have a drawdown in the portfolio above 10%.

When you max risk 1% of the portfolio in one moment you can create a 10% drawdown in the long run and then you need to have 11% gain to recover to break-even.

Retail traders with huge losses and drawdowns like 50% or 30% – can be broke easily because they need a huge amount of percentage to recover their losses.

2. Conduct preparations prior to commencing your trading.

As a trader, you need to have strategy and edge and you need to statistically test that strategy. Using the trading journal you need to see when your strategy gives results and when doesn’t.

My choice is Kelly criterion as a mathematical formula relating to the long-term growth of capital developed by John L. Kelly. I use in each trade to maximize long-term growth.

Mathematically shown in the formula below:

Position size = Winrate – ( 1- Winrate / RRR)

To get the Kelly ratio – we can use example from my older article :

W = 26/50=0.52
R = (780/26)/ (600/24) =1.2
K% = W – [(1 – W) / R]
K% = 0.52- [(1 – 0.52) / 1.2]
K% = 12%
Goal is to compare various systems to see which system has the smallest risk.

Using this number I can compare my strategies, performance – to improve myself as a trader.

Due to the fact that there is much leveraging in the realm of the Forex market, such as even up to fifty to one, this can present a high appeal such as in relation to the purchasing of a lottery ticket. There is a relatively small opportunity to make a large sum of money. However, buying a lottery ticket is not the same, as it is not trading and is gambling. The odds are truly stacked against you in relation to purchasing a lottery ticket.

To enter the Forex market in a better manner, this requires real and careful preparation. It is a good idea to commence with a practice account. This will prove to be risk-free and deeply helpful. As you engage in trading in your practice account, it is advised to read high-quality books about Forex trading. You can readily access such books via Amazon for purchase or you could choose some books from your library as well if you do not wish to pay for such books.

It is wise to apply the information that you have access to from what you read. This will allow you to engage in the decent planning of your trading strategies prior to going full speed ahead with trading. It is advised to stick with your trading strategy instead of changing your plan frequently. The truth is that the more one changes his or her trading strategy plan, the less likely he or she will make a profit. In other words, the Forex trade profit will slip away.

3. Apply diversification.

It cannot be denied that there are some key strategies that should be part of the trading plan of each trader in order to reduce any risks of loss of money. Thus, one great element is to apply the usage of diversification. In order to increase the likelihood of achieving a profit, it is best for traders to conduct a wide number of trades that are small and that are in diverse markets where the direct correlation in regard to the markets tends to be on the low side. Generally, it is a poor decision to place all one’s money toward conducting one large trade. It is also wise to become familiar with methods that will generate a guaranteed profit on orders that are already proven as being profitable. Take into consideration, for example, a trailing stop. In addition, it is wise to realize the importance of applying the usage of the stop and engaging in the usage of limit orders to minimize any financial losses.

Advice:
So how to become profitable in forex? Do not try to predict the market all the time and chase for money. The trick is position sizing, small risk, preparation for each trade. Wait for the right moment to enter into the trade and always try to create a plan for position exit.

Question is this: How can we sell something if we don’t own it?
Stocks short-selling can be defined as the practice to contact a broker to borrow financial instruments and sell them at the prevailing prices in the market when lower prices are expected in the future. The borrowed financial instruments can be returned to the broker by buying them from the market when their prices fall. The difference between the selling prices and buying prices will be your profit.

Forex short selling is the process of selling the base currency and buying the quote currency in the expectation that the value of the currency pair will fall. For example, GBP is the base currency and I want to sell it. I think that USA economy is excellent and in rising trend and USD dollar is very strong. GBPUSD is a currency pair that price will go down (my prediction for example). So, forex short selling of GBPUSD currency pair is when I SELL GBP base currency and BUY quote currency USD in the expectation that the value of the currency pair GBPUSD will fall.

How to short forex

When you trade in the forex market then you can do business not only in bull markets but also in bear markets. When prices increase in the forex market then people usually buy a currency and hold their investment until its price increases so that the difference in selling and buying prices can give them a profit. But most people do not know how to trade in the forex market when prices are falling. The information provided in this write-up will help you to know how to short forex trading.

How do you short the dollar for example? I choose the strong currency in the market at that time. For example CAD. Than I SELL USD and BUY CAD in the expectation that the value of the currency pair USDCAD will fall.

Meaning of short forex trading

Normally you can make profits in the forex market by buying a currency and sell it afterward when its price rises. The difference in the selling and buying price of that currency will be your profit. So, for this reason, most of the forex traders look for undervalued stocks to invest in them with the hope to earn profits someday when its price rises.

But you can also earn profits when the price of that currency falls. It is called short-selling.

Working of short-selling

The investor who does not own financial instruments is known as a short seller. He borrows financial instruments from a forex broker and sells them in the market at their current price.

After sometime when the price of the same instruments falls in the market, then the short-seller buys them from the market at the prevailing price and returns back to the borrower to close his short trading position. The disparity in the buying and selling prices will be the profit earned by the short seller.

The practice of short selling financial instruments is used not only by the beginners but also by the professional forex traders. The main advantage of forex trading in bull, as well as the bear market, is that forex traders can earn profit in both market conditions just by analyzing the market correctly.

Risks involved in short-selling in the financial markets

But, the short-sellers should also keep the risks of short-selling in their mind. The risk of trading the financial instruments you have bought can be the least as they have unlimited chances of increasing their prices whereas their price cannot fall below zero. But in stocks short-selling, the chances of earning profits can be very limited as zero can be the last limit for falling the prices of short-selling instruments also but chances of increasing their prices can be unlimited. So you may not be able to earn any profit if the price of the short-sold instruments rises in the future.

Still many traders in all the financial markets short-sell various financial instruments including CFDs, currencies, stocks, and commodities these days to earn profits in the market with falling prices.

Working of forex pair trading

In the forex market normally eight main currencies including the Canadian dollar, US dollar, Swiss franc, British pound, Australian dollar, the dollar of New Zealand, Euro and Japanese yen are highly traded in routine. All these currencies are traded by forex traders in pairs instead of individually as the price of every currency is determined on the basis of the price of the counter-currency paired with it.

In these pairs, the first currency is known as the base currency and the second one as the counter-currency. The rate of exchange of these currencies can rise if:

The value of base currency increases or that of counter-currency decreases the value of base currency increases along with a decrease in the value of counter-currency. The value of both the currencies increase with a higher increase in the value of the base currency value of both the currencies decreases with a higher decrease in the value of counter-currency

Currency pairs are traded in lots on a daily basis in the international forex market. In order to know the rising and falling prices of different currencies, you can follow the currency indices. Almost 100,000 units of the base currency are considered as a lot to be traded in the forex market.

Many traders practice short-selling or shorting in forex because the risk in shorting forex is much less than in shorting stocks because the prices of the currencies in a pair are interrelated.

The environment of the forex market changes dramatically when the rate of exchange of the currencies in a pair increases or decreases highly as their exchange rate is determined on the basis of the market value of both the currencies.

Risks of short forex

However, the forex market can become frightening for traders from time to time due to unexpected events in it. The unexpected removal of the pair of EUR/CHF in 2015 by the National Bank of Switzerland can be a good example to understand unexpected events in the forex market. This event has dramatically increased the value of Swiss Franc by 30% within a few minutes. The traders short of Swiss francs have to bear huge losses.

The vote on Brexit in 2016 is another example of unexpected events in the forex market as many investors have to bear heavy losses who were short of the currency pair of EUR/GBP.

Costs on short forex

You should also focus on the costs of rollover and financing when the forex market is on shorting as it can potentially decrease the profits of forex traders.

You will have to pay interest for funding one currency with the other currency in a pair if one of them is short. However, you can also earn interest on the currency you are funding with depending upon the difference in the interest rates of both the currencies in the pair.

Moreover, you will have to pay the cost of financing your to the broker if you are short on leverage. This cost can depend upon the current rates of interbank transactions plus the markup of your broker.

Thus, it is how to short-sell in the forex market.

What are the advantages of forex trading?
Forex trading is a 24-Hours high liquidity market that can be traded with small start-up capital, small transaction costs where no single institutional trader can control market prices.

If you are an experienced trader then, Forex trading is the one for you. It is an option that is available in the world market for you. It is highly lucrative and you can have many benefits in the everyday life of it. But believe me, you can have all the benefits of Forex trading if only and only if you are experienced in it. Otherwise, it might not be your choice of work. But having learned the little nuances of it, you can reap high profits.

Let us discuss here some of the benefits of Forex trading here.

1. Working Hours – The first best thing about this trading is that you can work at any time of the day. It is an option that is available 24 hours a day. You can take a weekend break as well, as the market is closed for the weekend days. The working time of the market is from 5 pm on Sundays EST. The trading begins in the US and ends when the major trading market is closed by Friday 5 PM EST. There are no huge gaps in trading because the market doesn’t work only on weekends.

2. High Liquidity – Liquidity is the major benefit of Forex Trading as this is like the capacity of an asset to be able to convert into cash. So when it is said that your trade has high liquidity then it means that you can make huge amounts of cash or you can have large amounts to trade with that particular day. This also will be within the small spreads. Trillion dollars flow every day in the forex market. There is no single institutional trader that can control market prices.

3. Transaction Costs – These spreads are an important term in trading as it the difference between the bid amount that you might fix and the amount that the potential selling people might actually offer. This spread will actually be the payment for the people who are involved in this trading. So, the transaction costs generally are small when we compare with stock transaction costs.

4. High leverage – You can actually see that the brokers who are into these Forex trading usually let the sellers and buyers in the market and use a fair amount of leverage. Leverage can be up to 1:1000. This is the one that gives them the ability to trade with elevated amounts than what they actually possess in their accounts. So, this leverage is the one that actually allows you to control trade with a lesser capital than what you actually have.

5. Get Benefited From Rising and Falling Prices – Another advantage of involving yourself in Forex Trading is that you can get benefited when the prices are rising or falling. Both these factors can be suitable for you depending on how you use these. I suppose that you see a currency pair that is going to boost in price then you can buy it or vice-versa. These are the benefits over the stock market and Forex Trading.

6. Small start-up capital: Traders can trade in the forex market with small start-up capital. You can start at $500. In the stocks market, traders very often need to start from $25000.

Again, here is a gentle reminder, this Forex Trading is not for the inexperienced traders. You might not profit the same as what others are doing in the same field.