Forex you can make money by buying a currency pair or selling a currency pair. In this article I describe how exactly you profit from this.

Terms

  1. Lot – this refers to the volume of currency traded
  2. PIPS – stands for Price Increase PointS. It is the smallest change In price
  3. Spread – difference between buy price and sell price

Case1: Suppose you buy EUR/USD, one Lot of size 0.1, at 1.4200 this will cost you $10. Then as the market moves the price of EUR/USD moves from 1.4200 to 1.4250. This is an increase by 50 pips. So you have gained a profit of 50 pips which is equivalent to $(0.1×50) = $5. When you have bought you will only make profit if the price increases from the buying price.

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Case2: Suppose you sell EUR/USD, one Lot of size 0.1, at 1.4200 this will cost you $10. Then as the market moves the price of EUR/USD moves from 1.4200 to 1.4150. This is an decrease of 50 pips. So you have gained a profit of 50 pips which is equivalent to $(0.1×50) = $5. When you have sold you will only make profit if the price decreases from the buying price.

Case3: Suppose you buy EUR/USD, one Lot of size 0.1, at 1.4200 this will cost you $10. Then as the market moves the price of EUR/USD moves from 1.4200 to 1.4150. This is a loss of 50 pips which is equivalent to -$(0.1×50) =- $5. The loss is because you bought but the price decreased instead of increasing.

Case4: Suppose you sell EUR/USD, one Lot of size 0.1, at 1.4200 this will cost you $10. Then as the market moves the price of EUR/USD moves from 1.4200 to 1.4250. This is a loss of 50 pips which is equivalent to -$(0.1×50) =- $5. The loss is because you sold but the price increased instead of decreasing.

If you buy a currency pair say EUR/USD Lot size 1 costing you $100 and the price increases by 50 pips you will have made a profit of $50. The market moves very fast at times and can move by 50 pips in less than an hour. At any given day the movement is usually at least 150 pips up or down. The trick is to know which direction the market will go and trade in that direction.

Every broker charges a spread. Fro EUR/USD its usually 4 pips. So whenever you make any trade whether buy or sell, you will have started off at a loss of 4 pips

In a nutshell, that is how you can make $50 or more in a day or even in a few minutes depending on the speed of the market. Next, look at how to determine whether to buy, sell or wait.