Make money with trading at home

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How to Make Lots of Money in Online Stock Trading

Updated: February 11, 2020

This article was co-authored by Michael R. Lewis. Michael R. Lewis is a retired corporate executive, entrepreneur, and investment advisor in Texas. He has over 40 years of experience in business and finance, including as a Vice President for Blue Cross Blue Shield of Texas. He has a BBA in Industrial Management from the University of Texas at Austin.

There are 21 references cited in this article, which can be found at the bottom of the page.

Investing in the stock market can be a great way to have your money make money, particularly in today’s economic climate where savings accounts and long-term bank notes do not offer significant returns. Stock trading is not a risk-free activity, and some losses are inevitable. However, with substantial research and investments in the right companies, stock trading can potentially be very profitable.

About This Article

While stock trading can be risky, you might be able to make a lot of money if you do your research and invest in the right companies. Start by researching current market trends from trustworthy publications, like Kiplinger, Bloomberg BusinessWeek, and the Economist. Then, decide which trading sites you’d like to use, and make an account on 1 or more of the sites. If you can, practice trading before you put any real money in the market by using market simulators. When you’re ready to trade, choose a mixture of reliable mid-cap and large-cap stocks, and monitor the markets daily. For tips from our financial reviewer on buying and selling stocks for profit, read on!

How Do You Make Money Trading Money?

Investors can trade almost any currency in the world through foreign exchange (forex). In order to make money in forex, you should be aware that you are taking on a speculative risk. In essence, you are betting that the value of one currency will increase relative to another. The expected return of currency trading is similar to the money market and lower than stocks or bonds. However, it is possible to increase both returns and risk by using leverage. Currency trading is generally more profitable for active traders than passive investors.

Key Takeaways

  • It is possible to make money trading money when the prices of foreign currencies rise and fall.
  • Currencies are traded in pairs.
  • Buying and selling currency can be very profitable for active traders because of low trading costs, diverse markets, and the availability of high leverage.
  • Exchanging currency is not a good way for passive investors to make money.
  • It is easy to get started trading money at many large brokerages and specialized forex brokers.

Buying and Selling Currency Explained

It is important to note that currencies are traded and priced in pairs. For example, you may have seen a currency quote for a EUR/USD pair of 1.1256. In this example, the base currency is the euro. The U.S. dollar is the quote currency.

In all currency quote cases, the base currency is worth one unit. The quoted currency is the amount of currency that one unit of the base currency can buy. Based on our previous example, all that means is that one euro can buy 1.1256 U.S. dollars. An investor can make money in forex by appreciation in the value of the quoted currency or by a decrease in value of the base currency.

How Do You Make Money Trading Money?

Another perspective on currency trading comes from considering the position an investor is taking on each currency pair. The base currency can be thought of as a short position because you are “selling” the base currency to purchase the quoted currency. In turn, the quoted currency can be seen as a long position on the currency pair.

In our example above, we see that one euro can purchase $1.1256 and vice versa. To buy the euros, the investor must first go short on the U.S. dollar to go long on the euro. To make money on this investment, the investor will have to sell back the euros when their value appreciates relative to the U.S. dollar.

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For instance, let’s assume the value of the euro appreciates to $1.1266. On a lot of 100,000 euros, the investor would gain $100 ($112,660 – $112,560) if they sold the euros at this exchange rate. Conversely, if the EUR/USD exchange rate fell from $1.1256 to $1.1246, then the investor would lose $100 ($112,460 – $112,560).

Advantages for Active Traders

The currency market is a paradise for active traders. The forex market is the most liquid market in the world. Commissions are often zero, and bid-ask spreads are near zero. Spreads near one pip are common for some currency pairs. It is possible to frequently trade forex without high transaction costs.

With forex, there is always a bull market somewhere. The long-short nature of forex, the diversity of global currencies, and the low or even negative correlation of many currencies with stock markets ensures constant opportunities to trade. There is no need to sit on the sidelines for years during bear markets.

Although forex has a reputation as risky, it is actually an ideal place to get started with active trading. Currencies are generally less volatile than stocks, as long as you don’t use leverage. The low returns for passive investment in the forex market also make it much harder to confuse a bull market with being a financial genius. If you can make money in the forex market, you can make it anywhere.

Finally, the forex market offers access to much higher levels of leverage for experienced traders. Regulation T sharply limits the maximum leverage available to stock investors in the United States. It is usually possible to get 50 to 1 leverage in the forex market, and it is sometimes possible to get 400 to 1 leverage. This high leverage is one of the reasons for the risky reputation of currency trading.

New forex traders should not use high leverage. It is best to start using little or no leverage and gradually increase it as profits and experience grow.

Disadvantages for Passive Investors

Passive investors seldom make money in the forex market. The first reason is that returns to passively holding foreign currencies are low, similar to the money market. If you think about it, that makes sense. When U.S. investors buy euros in the forex market, they are really investing in the EU’s money market. Money markets around the world generally have low expected returns, and so does forex.

The benefits of the forex market for active traders are usually useless or even harmful for passive investors. Low trading costs mean very little if you do not trade very much. Using high leverage without a stop-loss order can lead to large losses. On the other hand, using stop-loss orders essentially turns an investor into an active trader.

Getting Started With Forex

The forex market was once much less accessible to average investors, but getting started is easy now. Many large brokerages, such as Fidelity, offer forex trading to their customers. Specialized forex brokers, such as OANDA, make sophisticated tools available to traders with balances as low as one dollar.

The DIY day traders: ‘I lost £250k but made it all back and more’

Anyone with a debit card and an Internet connection can become a day trader. We talk to three people who play the markets from home

By Kate Palmer, video by Philip Allen

9:43AM BST 15 Oct 2020

Every day Rene Muccio, 51, carefully studies a mishmash of charts and news tickers from his South London bedroom before trading his life savings on the global currency market.

He is one of a small community of “day traders”, buying and selling shares online from their bedrooms and kitchens, lured by the prospect of making thousands of pounds from small price fluctuations in trades that last seconds.

Mr Muccio, a father of three from Bromley, said he had made £220 the previous day from forex trading between pounds, dollars, euros and yen – his biggest win to date.

But he has lost thousands along the way. Mr Muccio gave up a successful antiques business in 2007 to trade full time. “I was looking for an excuse to stop, this was the answer, but it was too soon. I knew absolutely nothing,” he said.

He lost £2,000 within the week. He said: “I keep going because I keep improving. Sometimes I can see trades so clearly and I know it is off the back of everything I have learned, and I can look at the charts and just know where it is going.”

Mr Muccio said he has six months of savings left before he has to either quit trading or remortgage. He said: “Even if I did lose a trade I wouldn’t care because it feels so good that you’re following whatever your heart and soul is saying.”

Experts say this is pure gambling.

At-home traders, equipped with just an internet connection and basic software, rely on guesswork, said Mark Dampier, an investment expert at Hargreaves Lansdown. “It’s a bit like professional gambling. Trading in seconds is the opposite of genuine long-term investing.”

Mr Dampier explained that it is impossible to predict short-term movements in the market unless you have inside knowledge – which is illegal. “There are far more losers than winners,” he said.

However, the Porsche and six-figure account held by forex trader Charlie Burton, from Greenham in Berkshire, tell a different story.

The former City trader once made £7,000 in five minutes on a single gold trade. “Now I have a more modest daily target of £500 to £1,000,” he said.

But Mr Burton, who has 17 years’ experience trading with a fund management company, has suffered losses that make Mr Muccio’s pale in comparison.

“I lost £250,000 in my first year of trading solo and that memory will stay with me forever.”

However, Mr Burton said that things had improved since he closed the account in 2003. “The day I hit the button to take out the money left was a huge weight off my shoulders.

“Now I’ve learnt not to become elated if I am in a strong position, because I do not want to be down on a weaker day.”

Mr Burton said that anybody can trade even if they do not have a six-figure sum to spare. He is now challenging himself to turn a £10,000 pot into £100,000.

However, budding traders should expect to lose money for the first few years, he said.

“I’m not a City trader who gets millions in bonuses every year, but I’ve also got a lot of experience.

“People think that if you read a couple of books and go on a course you will make money, when actually it’s one of the hardest jobs in the world.”

He said you should wait at least two years before expecting to make a profit. “You have to be able to take a punch and when you have a down month that can be quite hard for some people.”

Mr Burton advised people to trade part-time to start.

“I’ve met traders who are also airline pilots, doctors, and dentists. More and more people are trading on the side in their bedrooms,” he said.

One trader of this type is Jackie Mitchell, 52, who trades in the morning and runs a dry cleaning shop in the afternoon. Her interest was piqued seven years ago when she attended a free seminar. “I thought great, this seems fairly straightforward and started trading the next day.”

Since then, Mrs Mitchell, a mother of four from Northwood in Middlesex, has lost her £3,000 pot on two occasions. “There have been many highs and lows, lots of tears and laughter,” she said.

“Expect to lose money when you’re new. They don’t tell you this in the seminars,” she said.

Jackie Mitchell trades in the morning and runs a dry cleaning shop in the afternoon

Mrs Mitchell said that she is now making money, but like many traders did not want to make her earnings public. “I pay my bills and have the advantage of being able to trade from my computer, so I can go on holiday for weeks and take my screens with me,” she said.

Almost anybody can sign up to an online investing platform from home such as UFC Markets, InterTrader Direct, ETX Capital or IG, with as little as £100.

It is possible to make money by following the moves of institutions and big players, quickly buying or selling stock or currency in reaction, Mr Burton said.

“You don’t need to know an economy inside out, but follow what is moving the markets and jump on the back of big players moving and any news announcements,” he said.

However, experts remain sceptical of the practice. Brian Dennehy, from FundExpert, the investment shop, advised traders to treat any shortterm gains with caution.

“Don’t get confused by a string of successes. These are sometimes down to sheer luck. You mustn’t confuse a coincident lucky trend with personal genius,” he said.

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