How Do Foreign Exchange Traders Make Money?
Cost Movements for Pairs
Forex traders seek pips--that is actually, the measure of profit in their trades. Each pip may be worth $10. For example, if you made 20 pips inside a single-lot USD/EUR trade, you have made $200. Should you traded two lots you made $400, and the like.
Bid/Ask Spreads
The difference between the bid price and also the ask price (or offer price) may be the price the trader will pay to initiate the actual trade. For example, if the USD/EUR pair is actually bidding $1. 37 and asking $1. 38, the difference is one pip and trader can pay $10 per lot to trade this pair.
Basic Trading
Fundamental traders trade around news events like the release of unemployment data or central bank choices. For example, the fundamental trader is likely to know when the Bank of England will release its next interest rate decision. So upon that day, he'll trade pairs involving the Uk pound.
Technical Trading
Technical traders use chart patterns and volume movements to locate their trades. Indicators they use may include Fibonacci outlines, RSI, MACD and candlestick charts.
Spot Trading
A trader who trades spot currencies likely knows that after a major currency like the dollar is increasing or falling against another major currency, it is probably doing the same against several others, and that trend will be reflected within the spot price. Here the trader would go long or short a particularly spot price with respect to the overall trend.
Currency Options
Traders can also purchase and sell options on a single currency the way they'd on stocks or bonds. Currency options function just as with strike prices, expiration dates and the effects of your time decay. This can be a less risky method to trade foreign currency.