Is Forex trading profitable?

Is Forex trading profitable?

Is Forex trading profitable? This question has been debated for quite some time. This is due to the fact that many investors haven't had the success trading Forex they had imagined, and their experiences have cast a shadow of doubt on its viability as an investment choice. However, for a market that trades around $5 trillion daily in volume, it stands to reason that there are traders proftting from Forex, otherwise, the Forex market would have become unpopular and faded out. The question to ask then, is not if Forex is profitable, but how to trade Forex profitably and how to be consistently profitable.

Like any other type of investment, Forex Trading has its inherent risks and potential for profitability or loss and knowing how to mitigate these risks goes a long way in determining your own Forex trading profit or loss. Sometimes, people get carried away by the success of someone else who made Forex trading profit and throw in their money into the market without first finding out how the profit came about.

In order to have any chance of making profit in Forex, you first need to understand the market and the factors that are important for success. Is Forex profitable? It certainly can be. Below are three important factors to consider if you want to trade Forex profitably.

Is Forex trading for you?

Forex is undoubtedly a high risk market and as the risk is high, so is the potential for Forex profit. The most important question you should ask yourself is whether you have the appetite for risk. Not all trades will result in a profit and you must be prepared for losses.

Are you ready to keep going, even after a string of losses? Even the most successful traders make losses from time to time, so, if you don't think you can handle it, Forex probably isn't for you.

Invest wisely

Get a good understanding of the basics of how the market works and if there is anything you are uncomfortable with, don't trade it. This applies as much to Forex as it applies to any other business.

If you feel you've got what it takes to trade Forex, then go for it - but a word of caution here: trade with risk capital only (money that you can afford to lose without it affecting your living standards).

Also, it would be wise to ensure that you have other types of investments going. Ideally, Forex shouldn't exceed more than 20% of your entire investment portfolio.

Have a trading strategy

Trading Forex profitably requires that you employ a definite strategy. There is no right or wrong way to trade, rather what is important is for you to determine the one you will adopt. Sometimes, you'll find out that a trading strategy will work well for a currency pair in a given market, while another strategy will work for that same pair in another market or set of market conditions.

Trading Forex profitably demands a high level of discipline and a strategy helps you to stay focused and avoid emotional trading which has proven to be the downfall of many traders. Evolving your own strategy comes with experience. Beginners are advised to trade on a demo account for a while to practice and to understand how the market works. Once you have the right attitude, good risk management and a strategy that works for you, you will be closer to making profits in Forex.

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How to profit from Forex trading

Answering a question about Forex trading profits is rather simple. To trade Forex and achieve profits with this, you need to buy low and sell high. This is one of the best things about Forex market, as you can easily not only purchase the assets, but sell them without owning them.

Of course if profitable Forex trading was that easy, there would be millions of online traders making large sums of money every day. In fact, the situation is quite the opposite. Most Forex traders actually lose money (find out why they fail and lose money) and it is quite a challenge to start profiting with Forex. Let's take a look at the practical steps to help you understand how to make a profit in Forex trading.

How to make profit in Forex

Below the basic principles of Forex trading, risk management and trading psychology are described. Following these principles does not necessarily guarantee that you will achieve profits in this highly volatile and enormously large market, but it can help.

Without knowing the basics, it will be hard for you to profit in Forex. Let's examine these key features of profitable Forex trading below.

A stop-loss should always be used

No matter what your trading strategy is, you should always have your stop-loss set. What is a stop-loss? This is a trading parameter that let's you define the closing price of your trade, and the trade will be closed at this level automatically. In other words, once you have placed a stop-loss you can rest safe in the knowledge that you will not lose more than you expect. This may not necessarily be applicable every time, as sometimes the market behaves erratically and you can see some price gaps. When a price gap happens, your stop-loss will not be executed at your pre-determined level, but will instead be executed at the next available price - this may result in what is known as slippage.

Keep your emotions aside

This may sound simple, but it is extremely important. Emotions are a trader's worst enemy. Some people try to comprehend trading as a game where they have to beat the market, and once they start to lose this game, their nerves start to let them down. First of all, trading is not a game and you should never treat it like one. Forex trading is an exciting activity that is a mix between analysis and discipline. You should not get angry at the market nor should you be worried about your losing positions. Instead, you should just understand it, rely on your analysis and follow the rules you established for yourself. This is the ultimate key in how to profit from Forex. Emotions can spoil every trader's experience and this is why it is vital to keep them separate from your trading. If you feel down, do not trade, and equally if you feel too happy or excited you should also avoid trading. Feeling too confident about your trades can result in big losses.

Stay tuned in with the current issues in the markets

How can you be profitable in Forex trading? Staying up to date with the latest news releases is definitely one way. A lot of market moves happen due to either news and announcements or due to the expectations of news and announcements. This is referred to as fundamental trading. What you have to be sure about is that even if you are a technical trader, you should still be paying sufficient attention to fundamental events, as such events are a key driver of market moves. In other words, if you have a reliable trading strategy and all of the technical indicators point for a long trade, do check the Forex calendar and see if your trade is in line with the current news. Even if your technical setup works like a clock, fundamental news can be a game changer. You may also refer to our fundamental section to find out more.

So, how do you profit in Forex trading?

There is no golden rule here. Many people are looking for a direct answer to the question 'how to gain profit in Forex?' and most of them end up using Forex signal providers. This is an easy way to start trading Forex, yet it's doubtful as whether it can be a profitable one, especially in the long run. The main thing to remember here is that to be profitable in the Forex market you should mainly have more winning trades than losing ones. This of course is only applicable if your take-profit level is equal to the level of your stop-loss. To put this message into other words and make them fit more easily into your trading strategy, we can say that to be profitable in Forex, you need to make more correct moves than wrong ones.

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How profitable is Forex trading?

This generally depends on your trading strategy and on the risks you are willing or are able to take. Forex trading is done on the margin - this means that the size of your trade can be a lot larger than the size of your deposit. In other words, you can trade much more than you have. This can potentially lead to very high profits from Forex. Unfortunately the same also applies to your losses. Generally, profits and losses are almost unlimited in the Forex market and mostly it depends on your risk appetite, your trading strategy and level of understanding. Start trading for a skill instead of a profit and in time the profits should come with the skill.

You may also find this article useful. Good luck!