We like to keep you up on opportunities for side income, new businesses: ways of bringing in more money as your own boss.
One way to do this is with Forex, or Foreign Exchange Trading, trading on foreign currencies. This crafty enterprise amounts to trading one country’s currency for another, acquiring the ones with the most value, and thus turning a profit. It’s not easy, but due to its specificity, it gives you a chance to excel if you learn and keep honing the techniques.
How it Works
George Soros is reputed to have >made a billion dollars in one day trading international currencies. You will consistently have the same experience, right? Well, no, but some money is to be made in this streamlined—if subtle and difficult–manner.
The basics are that you’re spending one currency to buy another. You’re trying to anticipate a rise in value of a particular currency relative to another, and to buy a rising currency with one that isn’t rising.
When enacting a transaction, you’ll see a value of, say JPY/USD, how many U.S. dollars you can buy with one Japanese yen.
But why should you get into Forex trading? How is it a viable way to make money?
- Low cost- In short, Forex trading is a lot less expensive than stock trading. Generally, one owes a broker the spread, or the difference between the ask price and the bid.
- Liquidity- Forex trading centers around liquidity, the ability to cash out right now. If you do it right you can make quite a bit of money in Forex trading due to this liquidity—it’s a fast-moving field with serious ups and downs. This is a benefit when you’re winning, though not as much if the bottom happens to drop out.
- 24-hour trading-Forex trading is very much self-serve, catering to your convenience and preferences. Generally, people take advantage of the 24-hour activity by trading at peak times in markets in various parts of the world.
There is a lot one could say about Forex trading, and if you’re interested in getting started with it, you’ll certainly do plenty of research first. But we’d like to use this space to discuss one specific strategy to build up some extra cash.
This method, a type of Forex trading, is called spread betting. With this, you are literally placing bets. It isn’t about buying and selling currency, per se.
Rather, your concern is the upcoming changes in the price for a currency pair. That is, will the price of the currency pair be lower than the bid price or higher than the ask price? The bid price is the lower end of the spread and the ask (or offer) price is the higher end.
So, you look at the spread between, say, JPY/USD, and if you think it will drop, as one example, you’d sell at the higher amount. (If you think the price will rise, you’d buy.)
To get into further detail, you’re making bets of currency amounts per pip, with a pip being 0.0001, the smallest theoretical price change in the forex market. If you bet at ten USD per point, and the spread changes by two points, you earn $20.
Pros of Spread Betting
A lot of the benefits of general forex trading also apply to spread treading—it does enjoy everything mentioned above, the liquidity, etc. But a few other specifics make spread betting attractive to some.
- Tax Free- It’s hard for this not to jump out at you. Any trading venture can involve small advantages, and not having to pay taxes is a small edge. Capital gains taxes don’t apply to spread bets.
- You’re betting on volatility—It doesn’t matter if the market is positive or not. Because you’re betting, you can make money no matter what the market conditions are—it’s just a matter of guessing the market action right.
- Lower capital requirements than traditional forex trading.
- The profit/loss ratio is very good. You can implement automatic “stops” to your position which minimize losses.
Cons or Risks
- Someone looking for a long-term investment can’t go the route of spread trading. You have to pay fees for keeping a position open for so long
- With spread trading, you don’t have the opportunity to offset losses against capital gains.
Spread betting can offer opportunities for people looking to add to their income. Rather than buying and selling currencies, one can just anticipate movements of markets. If nothing else, this can be one of the ways you trade, increasing your opportunities.
One thing to remember is that it’s probably best to have some market experience before getting into Forex trading—it may be easy to understand in general terms, but that doesn’t make it easy to execute.
However, one thing that makes it easier is that some firms, like CMC Markets, for example, offer demo accounts so that you can get a feel for the market before making your first deposit.