How Profitable is Forex Trading?

Forex trading is a subject that has been discussed over and over again for the past few years. And because so many people tried it and failed, an important question popped up in their heads: Is Forex trading actually profitable? Well, given that it’s a market that trades around $5 trillion daily in volume, it’s pretty much self-explanatory that lots of people are actually profiting from it. That being said, if you’ve tried forex trading and it didn’t work out, consider that you might have done something wrong or you didn’t have the necessary patience or practice for the endeavor.

Therefore, in this article, we’ll discuss some of the common mistakes that forex traders make and how to use these in order to make the market profitable for you. 

 

Understanding Forex

One of the most common mistakes that forex beginners usually make is diving headfirst into trading, without having a good understanding of how it actually works. Forex can be profitable for anyone, but you need to take the necessary time to study it in-depth. The base concept that everyone is pretty much familiar with is that whenever you do a transaction, you basically agree to trade or exchange a currency for another one at a certain exchange rate. But then you need to understand what a currency pair is, how the exchange rate can fluctuate, and concepts like demand and markets’ expectations. 

 

The Right Strategy

Just because you’ve studied the concepts and you know what should be done in theory, it doesn’t mean that you can start trading and hope for maximum profitability. Therefore, the next step after getting a good grasp of forex trading is to come up with a good investment strategy. You currently have access to a bunch of strategies that people have made available online, but it would be a mistake to assume that just because these strategies have worked for some people, they will also work for you. Every time you trade, you’re in a different situation with certain particularities. Here we can include your time, your risk tolerance, and even your personality type. That being said, you need to find the strategy that best suits your particular situation, considering that not every strategy is good for every trader. 

 

The Forex Broker

It’s now time for you to choose a broker that will help you conduct your trading activity. It goes without saying that researching the top online Forex brokers is one of the most important steps of your trading journey, as this choice will heavily influence your future as a trader. Nowadays, the number of available brokers is overwhelming, to say the least. But again, depending on your needs and trading practices, only a handful of these brokers can help you maximize your profits. And that’s because all of them can help you with different tools, discounts and account offers. So sometimes a broker can offer you a great commission that will look very attractive to you, but at the same time, they’ll ask for a huge amount of money for your initial deposit. Other times, the initial deposit can be as low as $50, but they’ll condition you on how often you can withdraw money from your account. 

 

Using Safeguards

Another very common mistake that forex traders do is not using safeguards. One of these safeguards is the stop-loss. This stop-loss concept is basically an order that you send to your broker, asking them to limit the losses on a certain trade. You can do that by setting a stop-loss level, which basically will ensure you don’t lose more money than you expect when a certain trade behaves differently from what you thought initially. 

A different safeguard that you can consider is limiting your leverage. In forex, leverage is used by investors who want to profit from the fluctuations in exchange rates between two different currencies. This leverage is activated through a loan that is provided to a trader by the broker. That being said, going for excessive leverage is a mistake that can cost you a lot of money.

While most people who get into forex trading will lose money, it’s possible for you to be one of those people who are on the opposite side of the spectrum. But before you can dream about large profits, you need to take the time to study, to understand concepts, to come up with a strategy, and to ensure prudence by using a few safeguards like limiting your leverage, keeping a stop-loss and choosing a reputable forex broker.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.