Is Forex Trading Profitable? [How to Make It a Lucrative Venture?]

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There’s no doubt that forex trading can be a profitable venture. However, like any other type of investment, there’s always some element of risk involved. To be successful in forex trading, it’s important to understand the basics of the market and use sound trading strategies.

In this article, we’ll discuss how much is forex trading profitable and mention some of the factors you need to consider before starting your forex trading journey.

Is Forex Trading Profitable?

With a daily volume of trillions of dollars, the forex trading market is one of the largest financial markets. A 2019 survey by the Triennial Central Bank estimates the daily volume of the forex market was around $6.6 trillion during that period. What novice forex traders must be aware of before entering this trading market is that it involves a lot of risk, complexity, and uncertainty. While many mistakenly see trading as a quick way to get rich, the reality is you need to be a skilled currency trader if you wish to earn a big amount of money.

What Is the Forex Trading Income?

There aren’t any accurate predictions of the forex trading profit per day of someone who’s just entered the market, but the risks associated with forex trading are real. Forex traders report their losses at the end of each year, and although reports vary from one source to another, some sources report that almost 90% of traders lose money and end up quitting. However, there are also many reports such as one older DailyFX report which found that on average, investors make the right investments more than 50% of the time. Others who want to focus on the bright side of trading also report every third trader doesn’t lose money.

According to Indeed, the forex trading average annual income of professional traders hired by companies is around $91,000. One of the advantages of non-traditional forex trading practices is that there’s no limit on the amount of money you can make. If you’re looking to become a trader but don’t have the needed capital, you can check out some of the best prop trading firms currently available on the market.

On the other hand, the downside is that there’s no fixed income, and how much you’ll earn depends on different factors. Those considering entering the market shouldn’t take the reports of losses as discouragement, as there are many successful traders who started out small but choose not to share their stories for fear of their trading strategies getting revealed or attracting tax audits.

How Does the Forex Trading Market Work?

The forex market is accessible to anyone no matter their level of expertise, and beginners might start off small with a capital of $500 to $1,000. One thing traders new to the market should know is that forex profits are presented as a percentage of their deposits, and profit percentages vary according to the trader category. For example, a 1% profit can be of great importance to leading traders, while for newbie traders with tiny deposits it can have little significance.

The two factors that determine your earnings are your leverage and volume (daily number of lots). Profit and leverage grow proportionally, so when leverage rises, so does the risk of investment.

DID YOU KNOW: Forex trading markets operate 24 hours a day across 4 different trading centers.

Is Forex Trading Risky?

Predicting the forex market can seem almost impossible, as it can make some major swings over a short period of time, making the currency trading market both risky and exciting. Overall, your forex trading profit largely depends on your leverage, as it magnifies both your losses and gains. Leverage is commonly as high as 100:1, meaning you can invest $100,000 for every $1,000 in your account. Leverage is an excellent tool for those looking to invest beyond the size of their initial deposit, but the more leverage you use, the higher risk you accumulate.

Profitable Leveraged Forex Trading

As an example, we’ll set a scenario in which a trader with a starting capital of $10,000 is working with a broker with a 1% margin deposit. Let’s say there’s a move that gets USD/EUR from 120 to 110. A trader who decides to short their USD/EUR by $5,000 at 1.20 and cover their short position when the index reaches 1.10 can gain a sustainable profit from forex trading of 8.33% and make around $500.

Unprofitable Leveraged Forex Trading

To illustrate the risk of leverage, we’ll imagine a situation with a trader with the same capital as mentioned in the example above. Assuming the USD/EUR will be falling soon, a trader may decide to short at 1.20 and apply 50 times their real leverage, which will allow them to short USD/EUR by $500,000 instead of $10,000. However, if the USD/EUR goes up instead of dropping down, a trader will witness a loss of 41.5% on their entire deposit, earning no profit.

How to Make Forex Trading Profitable?

After considering the risks involved, you might be left wondering is forex even profitable. Well, it can be, but you should make sure to pay attention to the following, especially if you’re a novice trader entering the market.

  • Risk Management

Risk management is one of the most important aspects of forex trading, as your account can quickly dwindle without it. There are a few key things to keep in mind when managing your risk in the market: always use stop-loss orders, trade with money you can afford to lose, and don’t overleverage your account.

By following these risk management guidelines, you can protect your account from large losses. However, even with proper risk management, there’s always some element of risk involved in forex trading, so consider your risk tolerance before entering the market.

  • Overtrading

Overtrading poses a big threat to your forex trading profits in the long run, and it’s one of the most common mistakes made by new forex traders. When you overtrade, you’re essentially gambling with your account, which can lead to large losses and isn’t a sound strategy for long-term success in the market. Overtrading is often the result of too much information and strategies being available online.

Beginners often use an overly complicated high-risk strategy and end up making a lot of mistakes. Unlike knowledgeable traders, they’re also unable to control a big number of strategies at once and can easily lose their way in the market, which is why beginners should stick to swing trading and other similar strategies. On the other hand, the internet as a source of information can help newbies can learn the art of copy trading.

  • Mental Stability

Profitable forex traders are aware that losing money is part of the job. As a trader, you must be mentally prepared to get through the losses and keep methodically working on a strategy that will bring you profit. People often disregard the fact that mental stability is key to success in any endeavor, and this is especially true for forex trading.

As the market can be very volatile, there will be times when you’re down on your account, and having strong mental fortitude to go through the tough times and come out ahead in the end is very important. Additionally, be sure to take some time away from the market every now and then to avoid burnout and keep thinking fresh.

  • Treating Trading as a Business

Many focus their attention only on the profit they can gain from forex trading, seeing it as a get-rich-quick scheme. However, to be successful in the market, you need to treat your trading as a business, which means having a clear strategy, setting goals, and sticking to your plan.

If you treat forex as a hobby, you’ll have no real commitment to it—and as we mentioned, to become a successful trader, you must put in the work and research and strategize to avoid losses.

  • Choice of Broker

Your choice of broker is another important factor that can influence your forex trading profit, since not all brokers may be suited to your needs. Be sure to do your research and choose a reputable broker that offers a good platform and competitive spreads.

When making your choice, be sure to take into account what kind of accounts will be available to you and the level of leverage a broker offers.

Key Takeaways

The forex market includes a lot of risks and unpredictability.
There’s no forex trading profit per day, but there’s also no limit on the amount of money you can make on the forex market.
To be successful in forex trading, you should treat it as a business—develop a plan and focus on the long-term strategy.
Compared to the stock market, forex offers flexible trading hours, a higher volume, and better liquidity.

Forex Trading vs Stock Trading: Which Is More Profitable?

There are a few different reasons why someone may have a preference for one type of trading over the other. Here are some reasons why the forex market can make a more suitable option:

  • Volume

There’s a notable difference between the stock and forex market—the forex market has a volume of around $6 trillion, while the stock market is estimated to have a volume of around $200 billion. What makes this more convenient and can contribute to a bigger number of profitable forex traders is the simple fact that high trading volume means orders are executed more timely and prices are closer to what traders are looking for.

  • Liquidity

High volume is commonly accompanied by high liquidity. This implies lower fees on transaction and tighter spreads, meaning the difference between the bid and the ask price is closer. Unlike the forex market, the stock market liquidity can vary depending on the stock in question—a stock with a low volume and low liquidity will be difficult to purchase and sell, unlike a stock with sufficient volume.

  • Market Trading Hours

Traders all over the world are able to access the market and earn forex profits 24 hours a day, five days a week. Trading during the day can occur over several time zones, resulting in a very active foreign exchange, as when one zone closes, another one opens. On the other hand, the stock market comes with its limitations in this sense—companies are linked to certain stock exchanges and can trade only through certain hours of the day.

DID YOU KNOW: When investing in the stock market, all your investments depend entirely on the stock market itself, so it’s crucial you do extensive research when learning to invest in stock on your own.

Conclusion

Although the trading market revolves around risk and uncertainty, one thing is for sure—for some, it can be a lucrative business. When we compare how profitable is forex trading for those just entering the market and investing very little to experienced traders investing big sums of money, the difference can be astonishing.

As the saying goes, numbers don’t lie, and if you want to compare the past and current situation of the financial market before making any decisions, you can take a look at our article on trading statistics for 2022.

FAQ

Is Forex easier than stocks?

There are advantages and disadvantages to both stocks and forex, so when evaluating which is more profitable – forex or stocks, or which is easier to manage, the answer usually depends on your personal preferences and financial situation. In general, some say forex trading is more suitable for short-term traders, while stocks are a better fit for long-term traders.

Can you be profitable with forex?

Becoming a successful forex trader requires much work and patience. First, you’ll need to develop a sound strategy, and to do so you’ll have to treat trading as your business priority. Your success depends on a number of factors, including your choice of broker, your risk evaluation, and mental stability.

Is forex the most profitable?

As we already mentioned throughout the article, there’s no way to determine is forex trading profitable and whether it’s a good choice for you. However, judging by the numbers and the fact it’s considered the largest financial market in the world, we can say profit is definitely involved.

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ABOUT AUTHOR

Researching various topics started out as a hobby, turned into a passion, and became a profession. Finance, investments, and gambling seemed particularly interesting topics of research, so they became my main focus. Now, I can deliver fresh, relevant content on these topics in my favourite language — English.

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