Can You Make Money Trading Forex?
Can you make money trading trading Forex? 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 subsequently 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 profiting 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 in Forex.
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 achieved a Forex trading profit, and then throw their own money into the market, without first finding out how the profit came about.
In order to have any chance of making a 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:
Can You Make Money Trading Forex?
Forex is undoubtedly a high-risk market. Whether you can make money swing trading Forex, day trading Forex or with long term investments, the risk is high and 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.
If you do decide to trade Forex, you should consider using risk management in your strategy. This helps to minimise the risks associated with trading and can help you make money trading Forex.
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 market. If you feel you've got what it takes to trade Forex, 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. This is known as portfolio diversification, and is widely used by many successful professional traders.
If you want to know if you can get rich by trading forex, I can tell you that it is possible, but only few traders manage to pull it off and one integral principle that they use is trading wisely and never risking more than they can afford to lose. In this way, you can minimize risk and build earnings slowly, but steadily.
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 that you will adopt. Sometimes, you'll find out that a trading strategy will work well for a certain currency pair in a given market, while another strategy will work for that same pair in another market, or a different 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.
A good place to start with Forex trading is the Forex 101 online trading course from Admiral Markets. If you're completely new to Forex trading, you can get up to speed in just 9 online lessons! Click the banner below to register for FREE!
How to Profit from Forex Trading
Answering the question, “Can you make money trading Forex", 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 the 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, and it is quite a challenge to start profiting with Forex.
Featured below are the basic principles of Forex trading, risk management, and trading psychology. 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:
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 enables you to define the closing price of your trade, and the trade will then 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 predetermined 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 of analysis and discipline.
Here are the key points to remember:
- Never get angry at the market
- Never be worried about your losing positions
Instead, you should just understand them, rely on your analysis, and follow the rules you have 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. Equally, if you feel too happy or excited, you should also avoid trading. Feeling too confident about your trades can result in big losses.
However, this is easier said than done because emotions make us human. Let's hear from Jens Klatt, an experienced trader, about his expert opinion on mastering your trading emotions in the free webinar below.
Stay Tuned in with the Current Market Issues
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 to a long trade, make sure to 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.
How Much do Professional Forex Traders Make?
Traders who are work for a firm can earn any salary in a very wide range. It depends on the specific trader's job title, the firm they work in and even the country and city they are in.
Let's have a look. A Forex trader salary in the US, based on information from Indeed, is on average $98,652 per year plus $25,000 in commissions. However, the biggest salary they reported was $196,917, which was at the firm, Citi Trader.
Information gathered from Payscale stated that equities traders made a salary of $80,935 plus bonuses of $14,916, a commission amounting to $21,000 and profit sharing options at around $6,000. They reported base salaries ranging from $47,000 up to $160,000.
Source: Payscale.com, Equities Trader Salary
Glassdoor also reported a similar amount, with a salary being, on average, $91,642 with an average of $32,599 in cash compensation.
Source: Glassdoor.com, Average Trader Salary
Now, what is the situation across the pond? Can you make money trading forex in the UK?
Information from Glassdoor shows that the average salary of a Forex trader in London is £65,621. For comparison, at the current exchange rate, that amounts to around USD86,000. So, about $10,000 lower than the average salary in the US.
Source: Glassdoor, London Trader Salary
If you are interested in a full, in depth analysis of what a Forex trader salary is, depending on their job title, experience and location, have a look at this very comprehensive article, instead of going to Reddit and asking if you can make money from forex trading.
Is Automated Forex Trading Profitable?
Perhaps you've heard about automated trading (EAs), and you're curious: Why not use automated trading in the Forex market? Surely, as you search for an automated trading bot you'll find many EAs that promote 100% daily returns.
Occasionally, these EAs can be somewhat profitable. EAs occasionally cash in as they focus on technical-analysis based aspects of forex trading. However, many of these bots scalp the market, which means they set a wide stop-loss and cash in on small profits, which can lead to devastating losses for a trading account during a losing streak.
The biggest disadvantage of automated trading systems in the Forex market is that there are a lot of scams. The people that consistently make profits with EAs are the people developing them.
To earn a profit trading forex, you are best-off learning some tried and tested strategies and developing your own skill with them over time. Follow the rules provided above and, with some patience and dedication, you can get better at trading and mitigating your losses as a forex trader.
There is no golden rule here. Many people are looking for a direct answer to the question of 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 to 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 incorrect ones.
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 performed on the margin – this means that the size of your trades 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. Mostly, it depends on your risk appetite, your trading strategy, and your level of understanding. Start trading for skill instead of a profit, and in time, the profits should come with the skill. If you would like to learn more about profitable trading in the context of Forex trading strategies, why not check out our article on the Most Profitable Forex Trading System?
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.