How To Make Money by Trading Currencies

By Remitbee - Nov 16, 2021

Different countries have different languages, and they too have different currencies or a system of money. If you can travel to a foreign country without the need to learn how to speak their language fluently because you reason that you speak English and people in there speak English too, the same may not be true when it comes to currencies. If you are travelling to another country, it is essential to convert your Canadian Dollars (CAD) to the country's currency you are visiting to make purchases.

For example, suppose you plan on visiting the Philippines. In that case, you don’t need to feel pressured to study plenty of Tagalog words just to converse with others since most Filipinos speak English. However, you will need to convert your Canadian Dollars to Philippine Pesos to move around, buy items, or eat at the local restaurants to taste their famous chicken adobo.

With travel restrictions around the world slowly easing due to the vaccine rollout and the growing number of vaccinated people, travelling across countries will be back to normal soon. And even before this normalization takes place, you can take advantage of earning money by trading stocks.

The Basics of Currency Trading

The example scenario above is just the micro-level of the importance of trading currencies. In a larger picture, foreign exchange (forex) plays a vital role in the global economy. Because of forex, governments can implement policies; businesses use it to facilitate international trade, and investors speculate changes in currency prices.

The rule is simple if you want to make a living out of trading currencies. You have to (1) purchase a currency priced low with a high chance of increasing value in a short time and (2) sell that currency when it is high.

You need to know - The truth about free stock trading apps

The foreign exchange market is one of the fastest and most volatile financial markets to trade. You can gain or lose money in a matter of seconds. But because it is constantly moving, traders of all levels aside from the big players (i.e. banks, hedge funds, and money managers) can easily enter the market without much capital. Plus, the market is open 24/7, so you can conduct business whenever and wherever you are.

The important thing is always being on the know about the most tradable currency pairs. For example, US Dollars (USD) and British Pound Sterling (GBP). So if this is a pair of currencies you want to trade in, basically, the ideal scenario is that as the value of GBP increases, the value of USD decreases.

How to Earn by Trading Currency

Trading currency or foreign exchange is the purchasing and selling of a pair of foreign currencies in the market to earn income. The quote for a forex currency pair is equivalent to the value of one currency relative to the other.

Let’s use the GBP versus the USD currency pair. If the GBP/USD is trading at 1.37, that means 1 GBP Is equal to 1.37 USD. Even though two different currencies are involved, remember that the pair itself acts as a single entity like a stock or commodity.

As an investor of currencies, you earn a profit from trading currencies when you (1) buy a pair of currency, and its price increases and (2) sell a currency and then its price decreases. For example, based on your observation of the forex market and the world economy, Britain’s economy is going to grow faster compared to the United States, which means that GBP will be strong against USD. Because of this assumption, you will buy a GBP/USD pair. If the price of the currency pair rises, you will earn money. However, if after purchasing this currency pair, its price falls, you’ll experience loss.

Some Important Points to Remember

One of the frequent terms used in trading currencies is the “pip.” Simply put, the pip or the “percentage in point” or “price interest point” represents the last, or the smallest, in the change in a currency pair in the forex market. It is the most basic unit of measure in forex trading. Now, you earn or lose based on the change in the value of pip once the forex market fluctuates.

Foreign exchange is commonly traded in specific amounts called “lots.” Each lot is a measure of currency units you will buy or sell. You order according to the sizes quoted in lots when you place currency pair orders in your chosen trading platform.

Here is an enumeration of lot sizes in forex:

So let’s say that you have USD 1000 on your trading account as a starting investor and that the current exchange rate of GBP/USD is 1.37. If you assume that GBP will rise versus the dollar in a particular time and you bought £700 for your USD 1000, your assumption is correct because GBP rises from 1.37 to 1.38. To earn a profit, you will close the trade and exchange your GBP to USD, giving you a profit of USD 7 for this trade.

To increase your profit in forex, you can use “leverage” or a loan that brokers offer to expand traders' capital. The size of the loan can vary depending on your needs and risk capacity. While high leverage promises high-income potential, it can also backfire, which means a high possibility of losing money. So make sure to choose leverage that is at par with your risk tolerance.

The Perks of Having a Multi-Currency Bank Account

A multi-currency account is a bank account that allows you to hold, receive, send, and send money. Depending on your bank and account type of choice, a multi-currency account can have two up to over 50 currencies. This type of bank account is perfect for investors or traders. So if you would like to try to make money by trading currency, it is wise to own a multi-currency account.

You can exchange rates in your multi-currency bank accounts, but banks have much lower exchange rates and higher currency exchange fees. If you are based in Canada and would like to trade currencies, there’s one simple way you can maximize your money and therefore increase your trading potential. That is using RemitBee in exchanging your CAD to USD.

RemitBee promises ten times better exchange rates with no extra fees! Yes, you read that right. Download the RemitBee app on your smartphone, sign up, and start exchanging currencies online. To experience RemitBee’s best currency exchange service, make sure you have a Canadian bank account that can hold different currencies, including USD.

Sign up

Other articles in Stock Trading