Is Forex Trading Profitable? How Much You Can Make in Forex?
Updated in January 2022
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The foreign exchange — or forex — market is one of the most attractive markets globally, with a daily volume of over $6.5 trillion. However, starting in forex trading isn’t easy — there’s a lot of uncertainty and complexity. There aren’t any accurate predictions and estimates on how much a novice trader can earn — but all of the risks are transparent right from the start.
Even with the steep learning curve of forex trading, this craft has been in high demand since the beginning of the COVID-19 pandemic and its social distancing measures. But what are your chances like in the forex market in 2022? In this article, we’ll answer a fundamental question everyone has when starting: is Forex trading profitable?
Is Forex Trading Really Profitable?
Many people become interested in forex trading as a “get rich quick” scheme. However, while you can definitely make a decent amount of money in forex trading — it won’t make you rich unless you’re an off-the-charts skilled currency trader.As we’ve mentioned above, trillions of dollars go through the forex market every single day. And that’s why the most knowledgable traders make billions — with “the most knowledgable” being the operative phrase here.
As we’ve mentioned above, trillions of dollars go through the forex market every single day. And that’s why the most knowledgable traders make billions — with “the most knowledgable” being the operative phrase here.
In reality, a majority of forex traders lose money — some 68% of all forex investors report net losses at the end of the year. However, there’s another way you could look at that — every third trader does not lose money. And that’s where you want to find yourself.
How Much Do Forex Traders Make?
One of the biggest advantages of forex trading is that, unlike with a traditional paycheck, there’s no limit on the amount of money you can earn if you apply yourself properly. However, there’s another side to that coin: you have no fixed income, and your earnings depend on a variety of factors.
And don’t take this and the facts about losing traders as a discouragement — there are plenty of stories of people who entered the game with small funds and earned a small fortune. Chen Linkuy, a Chinese trader, started his work with no more than $100 — in just a couple of weeks, he made a $100,000 profit.
Now, there are a lot of facets to this story. Linkuy obviously had huge leverage, and his trading wasn’t in line with the money management rules of forex trading due to the high-risk nature of his strategies. However, his success isn’t isolated.
There are plenty of similar stories of forex fortune that aren’t made public — but you can definitely find many people who earned anything from $1,000 to $10,000 with small initial funds. In fact, high earners like Linkuy rarely publish their success because the publicity attracts tax audits or reveals their strategies.
Do I Need a Lot of Money to Make Good Forex Profit?
Trader profits in the forex market are rarely calculated in distinct dollar amounts — usually, they’re presented as a percentage of your deposit. Also, the profit percentages for every trader category have their own subjective assessment factors when determining success. Logically, a 1% profit per day is not a lot of money for a novice trader with a tiny deposit — while it can mean millions or billions of dollars for leading traders from world banks who manage huge deposits.
Furthermore, earnings are affected by your volume — the daily number of lots — and your leverage. If the leverage rises, the risk of the investment increases as well because your profit and leverage decrease or grow proportionally.
For instance, an extremely high-risk strategy combined with a lot of leverage can lead to earnings of $3 to $15 per day on a $10 deposit; but that’s a level of success few traders can hope for.
In conclusion, a trader’s earnings are definitely affected by the deposit they’re working with and their leverage. From then on, your skill at predicting the short-term world economic situation will be crucial — that’s where you get the insights and knowledge that influence your market predictions. The more money you invest, the more you’ll earn — but a large deposit isn’t enough on its own.
How Forex Leverage Affects Your Profits
In the forex market, leverage commonly goes up to 100:1. In simpler terms, this leverage means that you can make trades of up to $100,000 for every $1,000 you actually have in your account. It’s a handy financial tool for traders that want to raise their market exposure above the size of their initial deposit.
However, leverage is not useful if you’re not aware of all of its accompanying risks. In essence, leverage magnifies the losses of trading just as much as the gains — so it’s phenomenal when you’re earning and potentially debilitating if you’re losing. The more leverage you use on your capital, the greater the risks will be.
Example of Unprofitable Leveraged Forex Trade
We’ll illustrate the risks of leverage in forex trading with an example. Imagine if a trader had a starting capital of $10,000, and they were working with a broker who has a 1% margin deposit. They look at their current options, and their analysis leads both to think USD/EUR is nearing its top and will be falling soon. As a result, they decide to short USD/EUR at 1.20.
This is where leverage comes into play. If the trader decides to apply 50 times their real leverage in the case of this particular trade, they’ll be able to short USD/EUR by $500,000 instead of just $10,000.
So, what happens if USD/EUR goes up to 1.21 instead of falling, as the trader had predicted? They would go down by $4,150, which is a substantial 41.5% of the trader’s entire deposit.
Example of Profitable Leveraged Forex Trade
As we’ve already mentioned, leverage can be great if you use it wisely — because it can significantly amplify your deposit for a specific trade. Let’s say there’s a huge move that gets USD/EUR from 120 to 110.
If a trader decided to short the USD/EUR by $5,000 at 1.20 and then cover their short position once the index reaches 1.10 — they’d make a small 8.33% profit, or around $500. However, if they decided to apply a 50:1 leverage, they’d make a huge 416.67% — amounting to $25,000.
What Forex Strategy is the Best to Make Profit
There are plenty of descriptions of different trading strategies for forex trading. And the existence of so many diverse trading tactics and strategies makes picking a single one difficult. However, research on the types of strategies preferred by successful traders shows us how you’re the most likely to make a profit.
Learning from the experiences of more seasoned colleagues is a big help to other forex traders, particularly for beginners. A survey of thousands of successful traders has yielded some objective data showing what the best traders that work with top brokers prefer in terms of trading strategies:
31% prefer swing trading
28% go with the follow position strategy
27% resort to intraday trading
14% prefer scalping
These are different strategies in terms of when traders hold open positions. There are other ways of differentiating them, like based on their relations with current trends. In terms of trends, we can divide forex strategies as follows:
Trendline strategies — meaning trading only in the direction of the current trend and closing trades as soon as the trend movement ends.
Counter-trend strategies — where positions go against where the trend is going, and they’re closed once the pullback is done.
Sideways trades — where trades are made during price movements in a stable range, at the moment when the price consolidates. These trades are closed when the trend starts gaining momentum again.
When it comes to this division among strategies, surveyed trades have said they use:
|Strategies from the perspective of trends||Percentage||Number of votes|
As you can see, predictably, most successful traders prefer to “play it safe” and follow mainstream trendline strategies.
What Are Currency Pairs the Best to Make Profit
There are hundreds of different trading instruments in the forex market — but currency pairs are definitely the most important ones. Of course, with so many currencies out there, it’s not easy for a novice trader to pick the best ones in the beginning.
On the one hand, there are people who prefer sticking to USD/EUR as the most liquid currency pair — while others swear by more “exotic” currency pairs, which are a more volatile option. There is plenty of speculation about which currency pairs are the best for profitable forex trading, but there’s really no one definite answer that works in every single situation.
Certain experts suggest that high-volatility currency pairs are the ones that bring the most profit. Others believe that the high risk that comes with such investments is simply not worth it. Also, there are some people who mainly judge currency pairs by their liquidity, while others use volatility as the most important factor.
At the end of the day, the best way to determine the safest and most profitable choices is to see what successful traders are doing. Data from the Bank of International Settlements (BIS) shows that the biggest majority of transactions goes towards the EUR/USD pair. By itself, it makes up 27.95% of all the trading volume for financial instruments.
After that, the other popular pairs are:
USD/JPY at 13.34%
GBP/JPY — 3.57%
AUD/USD — 6.37%
EUR/GBP — 2.78%
EUR/JPY — 3.93%
GBP/USD — 11.27%
EUR/AUD — 1.8%
NZD/USD — 4.08%
USD/CAD — 5.22%
AUD/JPY — 2.73%
USD/CHF — 4.63%
As you can see, most of the highest-volume currency pairs contain trades with the US dollar and another major world currency. Analyses of global data on trading volumes show that these currency pairs are the most liquid types.
Plus, these currency pairs (except the USD/CAD and GBP/USD) have very moderate volatility that doesn’t go above 100 pips each day, a consequence of the substantial liquidity of these currencies.
Want to Make a Profit? Avoid the Forex Scams
It’s crucial to ensure that the broker you choose to collaborate with is legal, legitimate, and licensed by the appropriate financial authorities. If you don’t do your due diligence here, it’s likely that you’ll lose your hard-earned money without a way to get it back.
It’s not a bad idea to make a demo account and see how the platform works before investing any money, and you should also see:
How hard it is to open the account
How long do you need to wait for the support staff to respond to your questions?
Is the contract with the broker acceptable
Does your broker provide contact information, like a skype address, phone number, or email address?
Does the forex broker have physical premises you can visit?
Do they have all of the needed licenses and registration?
Can you access any of their performance histories?
5 Tips for Profitable Forex Trading
If you want to achieve truly profitable forex trading, you need to keep a couple of things in mind:
Choose a Reliable Broker
Besides a broker’s legitimacy, you want to know what kind of trading instruments they use, their expertise, the risk diversification opportunities they give you, what kind of accounts you can open, and the level of leverage they provide.
Learn Risk Management
Proper risk management is essential if you’re going to succeed in forex trading. The only way to win is with a long-term outlook — and in the long run, you’re likely to lose all the time. However, if you learn proper risk management, none of the losses will be debilitating, and you’ll be able to recover easily. You mustn’t overly rely on leverage, especially not in the beginning — that way you won’t burn out and you’ll preserve your capital.
There’s a lot of information on Forex trading online, which is why it’s easy for beginners to become embroiled in overly complicated strategies where they can make a lot of mistakes. For beginners, it’s best to stick to swing trading and similar strategies where you won’t be making a huge number of trades at once. These are far easier to control in the beginning.
Take Time to Prepare Yourself Mentally
One of the things people sometimes disregard about forex trading is the level of mental capacity required for the work. As a trader, you must realize one thing from the start — losing money in a limited capacity is just part of the job. You must prepare yourself mentally for a bunch of losses in a row and keep working methodically towards a profit.
Learn All the Time
If you approach forex trading as an occasional hobby, you’ll probably keep losing money all of the time. Instead, you need to be prepared to put in a significant amount of your time into the job. Be in a mindset that learns from every move and every trade; treat it like a school and business all at once.
The Most Profitable Forex Traders in History
George Soros is arguably the most famous forex trader and financial businessman in the world. His career began in post-WWII London, where he escaped from Nazi Hungary. Before establishing his own company in 1970, he worked in various other firms. However, his rise to international stardom began in 1992, when his trading shattered the Bank of England and gave him a tidy $1 billion profit.
Andy Krieger became a successful trader after leaving the Salomon Brothers in 1986. His subsequent work in the Banker’s Trust netted him huge capital limits — $700 million compared to the usual $50 million, showing the trust his employers had in him. Krieger’s biggest win was his short-selling of the New Zealand dollar, the currency that he rightfully viewed as vulnerable due to a global financial asset panic.
Lipschutz is another famous forex trader that worked in Salomon’s foreign exchange division. He joined the company just as forex markets started to boom in the 1980s and became hugely popular. His success was quick, and he managed to earn the company $300 million in just a couple of years. By 1984, he was the company’s principal forex trader and would hold that position until 1990 before leaving to become a portfolio manager at other firms.
Trustable Forex Brokers
FxPro is a reputable broker, working from Cyprus since July 2006. This company is licensed with many financial regulators like the FSCA from South Africa, the FCA from the UK, the SCB from the Bahamas, and Cyprus’ own CySEC.
The broker successfully does business in over 170 countries with institutional and retail clients. They’ve received numerous awards, such as “Best Trading Platform” and “Best Forex Trading Platform”.
XM is a broker that opened its doors in 2009. At first, they worked in a niche part of the forex market — working only in intermediary services related to forex transactions. In the meantime, they have shown considerable growth and expertise. After the diversification of their service portfolio, they are now a big international broker working in 190 world countries. They’ve had 3.5 million forex traders on their platform, and they’ve received awards for the Fastest Growing Broker.
The Admiral Markets forex brokerage began its work in 2001 — they’ve got licensing and registration by the ASIC — the Australian Securities and Investments Commission. Today, they operate with a 40 billion dollar cash cycle across more than 40 world countries.
Is Forex Trading Profitable? Expert Opinion
Compared to other methods of earning, Forex has a couple of advantages and disadvantages you should know about. When you deal with a broker, they handle all of the taxes, and you’re not limited in your earnings. And though forex earnings sometimes require a bit to get started, skilled traders can make a fortune after a couple of months.
This job doesn’t require any special education — the training you receive on the job and your own learning will suffice. So, there are far fewer barriers of entry compared to being a lawyer or a doctor. If you work hard, success will come your way.
Traders Union Financial Analyst
Can I trade forex with $100?
A majority of brokers working with Forex traders will let you create an account with a minimal $100 deposit.
What should I know before trading Forex?
There is a lot to learn before you can be successful in Forex trading — so make sure you don’t make large deposits before you know what yo1u’re doing.
Can forex make you rich?
Yes, with enough skill, cleverness, and solid deposits, it’s quite possible to be rich from forex.
What is a forex trader’s salary?
The average Forex trader earns about $80k a year, though it can go way beyond that if you show enough determination and skill.
Does Forex Trading Really Make Money
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