Types of earnings in Forex: active and passive earnings, description, and realization. Advantages and disadvantages of each option For many potential traders, Forex is associated with speculation on the foreign exchange market.
However, there are more than a dozen other options for earnings, which are associated with trading directly or indirectly.
And while they all require some kind of knowledge or skills, this is not a reason to discard them. In this article, you will find information about all the major types of earnings on Forex, practical examples, and the advantages and disadvantages of each type.
Options for earning on Forex
Forex is an over-the-counter foreign exchange market, where every day thousands of traders make hundreds of thousands of transactions worth millions of dollars. Someone loses, someone gains.
Someone is disappointed, and someone becomes a professional, and for them, trading is not just a job, but a way of living. Forex is multifaceted. Despite the rumors surrounding the over-the-counter speculative trading, the market continues to live like a beehive.
If you ask traders about their understanding of earnings on Forex, the most frequent answer would be speculation or earning on the difference in exchange rates. This stereotyped thinking prevents many from taking the path of success. In this review, I will tell you about more than 10 ways to make money on Forex, and maybe you will find something for yourself.
How to make money on Forex? Active and passive earning on Forex
The options for making money on Forex can be divided into two types: active and passive. In the case of active earning, the trader is directly involved in it. It does not have to be trading per se, but, for example, actively attracting potential broker clients through an affiliate program.
In the case of passive earnings, the investor invests money and their capital works for them while the investor is free to do other business not related to Forex. It is possible to combine the two types of earning.
1. Trading
If you are interested in the prospect of earning money on Forex, read many articles online, and decided to try your hand, first you should choose a brokerage company and register as a client. If you thought you should start by reading the literature and articles on the subject, this is not the case.
It will be very boring for you to read literature without combining it with practice. You need to study trading on the foreign exchange market directly on price movement charts. You can read on how to choose a reliable broker here. You read and practice at the same time - this is the only way to learn to trade.
How it works. This is earning on fluctuations in the rates of various assets. You can earn on CFDs (contracts for difference) for currency, commodity assets, stocks, and indices. Recently, most brokers have added cryptocurrencies to their lists of instruments
I would like to mention two things:
Swap. This is a kind of overnight payment for keeping the position. Without going into details, a swap is linked to the discount and interest rates of other countries. There is a situation when, as they change, instead of paying a fee, a trader may earn on the swap (the so-called positive swap). This strategy is called Carry Trade.
Rebate. This is not quite earnings of the trader, but rather compensation for their costs, but traders should still remember about this option. It is a partial return of the spread to the trader regardless of the effectiveness of the position.
Both the broker itself and third-party independent services can provide compensation. For a broker, a rebate is a marketing move aimed at attracting traders, increasing their trading turnover, or increasing interest in certain assets.
The essence of trading is to buy cheap and sell expensive, and vice versa. The trader has several tools for this: fundamental and technical analysis, as well as the trading platform in which the trades are carried out.
The trader can open long positions (buy an asset in order to sell it later) and short (sell an asset, then buy it cheaper and close the debt position). The transactions are executed by a broker who charges a commission (spread). Counterparties to transactions are other private traders, institutional investors, investment banks, etc.
A trader starts with registration (opening a trading account) and verification. It involves providing passport data, scans of documents confirming the place of residence (registration), and personal information. Verification is not always required.
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But I am of the opinion that opening a bank account is not anonymous for a reason, and my money is safer when I can prove that it is mine. Why? Our traders' blog editor described the essence of the verification very well in the article Security on Forex.
The next step is to test the broker's capabilities and gain experience by opening the first trades on a demo account. A demo account allows you to:
And finally, the decisive step is the opening of a real account, depositing, and finally, trading. The live account features allow you to:
To those who want to learn more about the capabilities of a live account and start trading, I recommend reading this article. It contains a detailed description of the functions of each menu item and gives practical examples of working with it.
Pros:
The brokers' arsenal includes up to 200 and more instruments. In comparison with the stock exchange, there are much more opportunities for diversifying risks and implementing the craziest strategies. To some extent, Forex combines all the advantages of stock, currency, and commodity markets.
Cons:
2. Social Trading
Those who are not eager to scrutinize the essence of independent trade can explore the advantages of copy trading. You can copy the trades of successful traders to your own account, in part or in full, which will save you from the anxiety of making trading decisions on your own.
Trades are copied in exchange for a percentage of your profit from copied trades, which is set by the traders providing their positions for copying.
How it works. Social trading (or LAMM accounts, lot allocation module) is a service for copying trades in amounts proportional to the funds of the investor. It works like this:
There are three main options for trading on LAMM-accounts:
Each of these three most common options has its pros and cons. For example, social trading from an individual broker is inferior to joint copy trading sites in terms of the number of accounts for connecting (which is logical, since the platforms bring together traders from several brokers).
ZuluTrade is a specialized platform intended specifically for social trading, it has many interesting tools and multinational chat (including discussions of every trader). But the start deposit here is from 300 US dollars. Continue reading with Litefinance...
