One of the first things that people interested in trading the forex markets for a living want to know is how much they would need to make every day to earn a full time living. Quite honestly, if you are looking to make a modest income($40,000-$50,000), from you home, the Forex markets are perhaps one of the best ways to do it with minimal capital and unlimited potential.
What you need to calculate, to figure out your trading profits, is something known as calculating your profit and loss by way of pip's movements. A pip is just the minimal amount of money a traded pair of currencies can move in price. For instance, if you have a currency quoted out to 4 decimal places, the smallest amount it can move is .0001. So, that .0001 is a pip. And we use it to calculate our profits for an entire trade.
So, you place trades in what are known as lot sizes. A lot size can be $10,000, $100,000, etc. To illustrate the power of Forex trading, and to show you just how small of a price movement you need to make 100s of dollars each day, I am going to use $100,000 lot size. Let's say that we trade $100,000 lot, and that the price of one currency relative to another moves up .0020. Now that number to your left is a fraction of a cent, but it is known as a 20 pip movement.
To figure out the profit that only a fraction of a cent movement can make on the trading of $100,000, we do the following calculation: (.0001/price of currency you are selling) * $100,000=price per pip (let's say in this example it is $5.00- it has nothing to do with a large huge movement, all we need to know is that pair that we are trading ONLY rose .0020), then we take this $5.00 price per pip and multiply it by the .0020 or 20 pips (rise in currencies relative to each other), and we get $100.
So, in summation, what has happened here is that you traded $100,000 lot(you don't have to trade such a large lot) and with a .0020 increase in the currency pair, you made $100. Now imagine if you traded that pair and it moved up a full cent. Well, you would have five times the amount of money. This trading takes studying and practice. You can actually trade a demo account(fake money, but real implications) with someone who does these exact types of trades for a living. He can give you daily live training here for an excellent price. Most good training costs thousands of dollars. This is a fraction of that.
Good luck training.
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