Forex trading is a form of trading in which currencies are traded. Everyone knows you can profit by actively analyzing the market and investing in the right trades. Still, many times you would have thought, “Is forex trading passive income?” “How can I make money from Forex other than active trading?”
It is normal if you find such thoughts popping in your mind because every one of us finds the idea of earning money without committing our whole day to analyze charts, trends, etc., quite lucrative, right? So, if any of such thoughts crossed your mind or you want to find an opportunity where you can earn even with investing small time and effort then you are at the right place as Forex trading can be a passive income opportunity if you have the right knowledge and skills to make money from it.
So without much ado, let’s dive deep to figure out “Is Forex trading passive income and how to make the best out of it?” But before that, let’s take a quick sneak peek of what Forex trading is.
What is Forex?
Forex trading is the buying and selling of one currency with another. It is a foreign exchange market that allows traders to buy and sell currencies at different rates. It has become a popular way to make money in recent years. Most people can start trading with little or no experience; however, some risks are involved, so it is important to understand what you are getting into before diving in.
Foreign currency transactions don’t take place in a single marketplace and are executed electronically. In other words, all transactions are carried out over computer networks globally, and the computer network links traders from around the world. Thus whether you are in the US, UK, Singapore, China, Dubai, or Japan, you can still indulge in Forex trading.
You can become a good trader with the right guidance, knowledge, and experience. As a trader, you should first have a basic knowledge of the Forex market, how trading works, and the market trends. Afterward, devise a trading strategy, pick up a trading style and method and follow it diligently.
What is the Difference between Active and Passive Forex Trading?
Active and passive trading differs in the amount of time and effort the investor invests.
Active Trading
In active trading, the trader has to do everything from analyzing the market, devising the strategy, holding a position, entering or exiting a trade, etc. Thus, it requires you to actively participate in the whole trading process and is time-consuming. It enables you to make trades based on market movements and is designed to take advantage of the market in real-time. It is undoubtedly high-risk trading, but it can be profitable if done properly and with the right mindset and analysis.
Passive Trading
In general, passive income is a type of income that does not require much effort from the person who earns it and can be received passively from investment activity. Thus, it requires minimum effort and time on your behalf. Depending upon your particular passive trading stream, you do not have to spend all day analyzing the market or making trades.
For instance, in the case of Forex-managed accounts, you act as the investor while the trader you hire makes trades on your behalf and earns profit for you. Moreover, Forex robots use an automated software tool to execute trades on behalf of the trader. This method allows traders more freedom in terms of what they can and cannot do during the day and lets them focus on other tasks.
Now, once we have a sound knowledge of what Forex is and the difference between active and passive trading, let’s address the elephant in the room and find out, “Is Forex trading passive income?”
Is Forex Trading Passive Income?
In Forex trading, the trader does not physically trade any goods or services. Forex stands for Foreign Exchange Market, and it is used to trade currencies from one country with another country’s currency and is a form of investment that can bring in passive income. Forex trading has been around for decades, with many traders making a living from this activity and others making a fortune on forex investments. The key to Forex’s success is making the right decisions at the right time.
Top 5 Methods to Generate Passive Income from Forex
Following are the top ways to generate passive income from Forex
- Forex robots and expert advisors
- Copy trading
- Forex signals
- Forex broker affiliate partnership
- Forex managed accounts
Forex Robots and Expert Advisors
The forex market is one of the most popular markets for traders. It offers a wide range of opportunities for investors and traders, with the potential for huge gains or losses in a short time. Forex Robots and Expert Advisors are the top methods to generate passive income from Forex. They are automated trading systems that trade on your behalf as they have been programmed to identify profitable trades and take action when the set conditions are met. These tools are especially helpful for those who are not able to trade actively.
All you have to do is set parameters like when to enter or exit the trade and define the stop loss order value etc. That’s it; once you set the parameters, the EA is there to trade for you, and an automatic trade will begin when your said parameters are met.
Thus, Forex Robots follow certain rules, strategies, and indicators without any human intervention to increase the chances of making profits for traders. Moreover, they save a lot of time on the trader’s behalf as the trader does not need to continuously monitor all the trades. Rather he just has to set the ground regulations, and the EAs will do all the work afterward.
Copy Trading
There are many ways to generate passive income from Forex; however, one of the most popular methods is copy trading, an information-sharing scheme. Now you can either act as the signal follower (the person following some other trader’s strategies) or a signal provider (the person who will get some specified amount or commission when the signal followers copy his strategies).
Copy Trading as a Signal Follower
It is very lucrative since you do not have to do market research or devise trading strategies yourself. You have to just find an expert trader and link your portfolio to that trader’s portfolio, and that’s all the work that needs to be done on your part. Now once your portfolio is connected to the trader of your choice, what happens is that the particular strategy or trading move that trader takes will automatically take place on your account too.
So if that trader makes a profit, you will also gain profit, but if the strategy of that trader results in a loss, then you will also have to face that loss. Thus, you can think of it as an auto-pilot; you have to link your account to that of some expert trader, and the rest of the work will get done. It is best for beginners because they have less risk exposure this way, as they will be copying the strategies from other expert traders.
Copy Trading as Signal Provider
You can share your knowledge with other traders or let the beginner traders (signal followers) attach their portfolios to yours. This way, you can earn commissions or specified amounts in return for providing them with your expertise.
It is worth mentioning that to generate higher income or instant rebates, you should have large numbers of signal followers, which in turn depends upon the number of your successful trades.
You can read about positional trading and whether or not it is the right choice for you here.
Forex Signals
Forex signals are a great way to generate passive income from trading in the foreign exchange market, which can help you make informed decisions about your investments. Although these signals do not add up to the passive income in the start as you have to work your way to learn how to decode or understand these signals as well as ensure that the particular signal provider is reliable or not.
Once you are done with these things, these trading signals can help you generate passive income. They will tell you important market information, like which currency you should hold and which you should exit, considering the market conditions. Moreover, they also help you better set different trading orders like the market, limit, stop, etc.
There are many ways to find these signals and receive tips, including forums, trading platforms, social media, and other online sources like websites and articles. That being said, you can either opt for the paid forex signals or the free ones.
No doubt that the paid forex signals often tend to be of higher quality. On the other hand, if you opt for free forex signals, you should ensure they come from a trusted source. If you settle for some unreliable source for the trading signals and invest in the wrong trade, it can result in big losses.
You can read about top Forex signal providers here.
Forex Broker Affiliate Partnership
There are many ways to make money with forex trading and if you have a large online presence, then the best way is to partner with a broker or a brokerage firm either on some fixed fees or getting some specified percentage from the broker’s part. Forex brokers offer incentives for referring new customers, and this method can be lucrative for those who have an established network of contacts.
Thus, partnering with a broker can benefit everyone, especially new traders. The main benefits of partnering with a broker are that you get access to the best brokers and earn commissions from your friends’ trades. Thus, it is a win-win situation for both the broker and the affiliate.
What you have to do is to become an affiliate partner of a forex broker. Take advantage of your large friends’ circle or online presence and convince your friends or followers to open their accounts with the same broker and earn commissions from your friends’ trades. Now, you can either share the contact information of the broker with your friends or what you can do is to get your specific referral link from the broker and place it on your social media account, blog, website, etc. Your friends or followers can click on that referral link that will redirect them to your affiliate broker, and once they become the broker’s client, you will receive your fair share of the trade.
Now, no doubt that this method seems too lucrative, but it also has some prerequisites; you should have a large online or offline presence, should have great communication and interpersonal skills, should have sound knowledge of trading and the market, should have a respectful and credible position as a Forex advisor among your circle, so that people can trust you and will go to your affiliate broker on recommendation or referral.
You can read if Forex trading is legal in the USA here.
Forex Managed Accounts
The forex market is a global marketplace for the trading of currencies. Forex-managed accounts are becoming more popular in recent years as it is an easy way to generate passive income for people who want to invest in the foreign currency market without trading themselves. Thus, investors can find a trader, also known as the money manager, who will take care of all the technical aspects of trading and make the trades on behalf of investors. Thus, the capital invested will be that of the investor, but the money manager devises all the trading strategies and controls how that capital is used for trading.
So, in the Forex managed accounts or the percentage allocation management accounts, what happens is that the money manager gets the fixed fees that are agreed upon by both the investor and the money manager, or he gets a specific percentage from the profits that he generates from the trades. Moreover, they must agree upon certain rules and regulations regarding taking and managing trade risks.
All in all, there are three parties involved in Percentage Allocation Management Money (PAMM), the investor, the broker, and the trader or money manager. It is worth mentioning that in this passive income method, you, as the investor, have the least control over your account (as the money manager manages it), and you should choose your money manager wisely.
Conclusion
Forex trading is a new and exciting opportunity not only for those who are willing to take the risk and trade actively, but it’s also a great way to earn passive income. Thus, by the end of this article, we have answered “Is forex trading passive income” along with addressing the main differences between active and passive trading? Moreover, we have discussed the effective methods to earn passive income from Forex, including Forex robots, Forex signals, Forex broker affiliate partnership, Forex managed accounts, and copywriting, each of which comes with its perks and prerequisites.
With Forex robots, you just have to set some parameters and the robots will automatically make the trades once the set conditions are met. Forex signals give you a sneak peek of the market and help determine what and when to trade. Copywriting lets you link your portfolio with an expert trader’s portfolio and copy their trading moves. With the Forex broker affiliate program, you can earn commission via a referral system. With Forex account management, you just have to provide investment; your hired trade/money manager will make all the trades on your behalf. We hope that you have understood these main passive trading streams and how to get the best out of them.
Happy trading!
References
- A Forex trading expert system based on a new approach to the rule-base evidential reasoning
- Longer time frame concept for foreign exchange trading indicator using matrix correlation technique
- Forex for beginners
- What is forex trading?
FAQs
Can you make passive income from Forex?
You can make passive income from Forex as with Forex robots, you just have to set some parameters and the robots will automatically make the trades once the set conditions are met. Forex signals give you a sneak peek of the market and help determine what and when to trade. Copywriting lets you link your portfolio with an expert trader’s portfolio and copy their trading moves. With the Forex broker affiliate program, you can earn commission via a referral system. With Forex account management, you must provide investment; your hired trade/money manager will make all the trades on your behalf.
What is passive trading?
Depending upon your particular passive trading stream, you do not have to spend all day analyzing the market or making trades. Thus, it requires minimum effort and time on your behalf. For instance, in the case of Forex-managed accounts, you act as the investor while the trader you hire makes trades on your behalf and earns profit for you. Moreover, Forex robots use an automated software tool to execute trades on behalf of the trader. This method allows traders more freedom in terms of what they can and cannot do during the day and lets them focus on other tasks.
What type of income is forex trading?
According to the IRC Section 988, forex income is categorized as Ordinary income.
Can I make a living off Forex?
Whether or not you can make a living off Forex depends upon your perseverance, hunger to succeed, risk management, invested time, analytical skills, and trading strategies, as many people have made millions using Forex trading. In contrast, some have lost all and haven’t been able to even make pennies.
Is it hard to be profitable in Forex?
It depends upon your perseverance, hunger to succeed, risk management, invested time, analytical skills, and trading strategies whether or not Forex can be profitable for you, as many people have made millions using Forex trading. In contrast, some have lost all and haven’t been able to even make pennies.
