Top 5 Methods to Generate Passive Income from the Forex Market

Can you make money trading Forex?

Yes, you can.

What's great about Forex is that you can:

Trade and earn, even with a full-time job

Trade even when the market is slow (low volatility)

Earn a passive income

Let’s take a look into the third option--how trading currencies can serve as an additional income stream without you doing all the hard work.

How to generate passive income from Forex

There are several ways you can earn passive income from Forex as a new trader. For professional traders, the income can come from commissions and fees.

Let's dig deeper into this.

1. Forex robots or EAs

Nothing is more passive than earning an income by automating your trades. Using robots, Expert Advisors (EAs), or signals, you can minimise your involvement since automated trading systems will execute trades on your behalf when certain parameters are met.

The most you'll have to do is to determine those parameters and set stop-loss size, when to take profit, and your acceptable risk levels. This makes trading easier and, as long as your automated system yields profit, you won't need to adjust or replace it.

2. Forex signals

Forex signals offer information on what currencies to buy or sell, including pending or market order, limit, or order type.

The signals can come from leading Forex trading platforms, forums or social media. Are these signals reliable? It depends on your source. You may receive the signals for free or via a paid subscription. There's no proof that paid signals always yield better trades.

While signals are one of the solutions to earn passive income from currency trading, your profitability still depends on how you approach trading with caution and manage your risks properly.

3. Copy trading

Copy trading is where strategy/signal followers (SFs) copy the position of strategy/signal providers (SPs) and profit from winning trades. Both parties generate passive income in different ways.

As a strategy/signal follower

Copy trading is a great option for inexperienced traders who want to profit from Forex, trade on autopilot, and learn from professional and seasoned traders at the same time.

Your portfolio is automatically attached to the portfolio of the trader you want to copy. This means any action the said trader makes will be automatically applied to you. If an SP profits, so will you. If an SP loses, so will you. The impact on your portfolio will depend on your allocation.

To ensure higher profitability, choose the best trader to copy and the trading platform with features designed to protect your account, including the detailed past performance of the signal providers.

As a strategy/signal provider

Your passive income will come from commissions and fees, the percentage of which will depend on the allocations you set.

Depending on the trading platform, you may earn instant rebates and a higher income the more followers you gain. Even if the performance fee you set is just 10% per SF, your overall profit is huge if you have 30 or more followers.

You do need to make more winning trades if you aim to attract more SFs. The same is true if you want to charge a higher performance fee that will yield a big profit even with fewer followers.

This is why it's important that you choose a broker that can help you promote yourself and your brand.

4. Become an IB/partner

Introducing Brokers (IBs) earn high rebates and commissions when they sign up as a partner of a broker or futures merchant. As they grow their network of sub-IBs, the commission they earn also increases.

An IB builds and maintains a direct relationship with a client without the need to deal with floor operation or trade execution unless he/she also trades.

If you're an existing trader of Fullerton Markets, becoming an IB is easier and you can add a passive income stream on top of your profits. If you just want to be an IB, not a trader, you’ll also have access to all the tools you need to grow your network, including exclusive training and world-class marketing materials.

5. Forex managed accounts

Forex managed accounts or percentage allocation money management (PAMM) is similar to copy trading, except that the trader you choose manages a pool of money from other investors, which is why they're also known as money managers (MM).

In a PAMM account setup, three players are involved:

Investor

Trader/money manager

Broker

How does PAMM work?

An investor gives a percentage of his/her capital to a money manager who pools capital from other investors and trades in the market on their behalf. By giving a percentage of their capital to the MM, investors agree to take the risks that come with Forex trading.

Whatever profit made is then distributed according to how much of the capital each investor signed over to the money manager. Apart from the profit, the MM also earns from the charges he set on the profit.

For instance, there are three investors--you, John and Michael who chose Collin to be the money manager. Collin charges 10% of the profit as payment for his services.

You invested $4,000, John $3,000, and Michael $3,000. Collin added his share of $5,000 into the pool, which brings the entire total to $15,000. The percentage per investor is then calculated as [(Invested amount/Total pooled money) x 100].

You = 26.67%

John = 20%

Michael = 20%

Collin = 33.33%

Suppose Collin made a profit of 30% or $4,500 on the pooled money after one trading term such as a month, three months or six months. This brings the total to $19,500 ($15,000 + $4,500).

Collin first takes 10% or $450 from the profit as payment for his services. The remaining $4,050 ($4,500 - $450) is then distributed among the investors.

You = 26.67% = $1,080

John = 20% = $810

Michael = 20% = $810

Collin = 33.33% = $1,350

Adding the profit and the initial investment, the total amount for each investor is:

You = $5,080 ($4,000 + $1,080)

John = $3,810 ($3,000 + $810)

Michael = $3,810 ($3,000 + $810)

Collin = $6,350 ($5,000 + $1,350)

Here’s a tabulation of the PAMM accounts and the corresponding earnings.

Whether you're an investor or the MM, you're sure to generate passive income from a PAMM account. You'll have to invest more time and effort if you're the designated MM than if you were just an investor, however.

Also, your account will go through highs and lows, depending on the outcome of the MM’s trades.

Now that you know how to generate passive income from Forex, start exploring the best option for you. Today is the best time as any to add another income stream without much effort.