The post Is Forex Trading Profitable? by Luke Jacobi appeared first on Benzinga. Visit Benzinga to get more great content like this.
You may have seen ads about forex trading and how easy it is to get involved in trading currencies using an online broker. While getting started trading forex is now easier than ever, and brokers eagerly want to attract new clients, the hard part about forex trading is making a profit on a consistent basis. But is forex trading profitable?
Trading forex profitably takes time, education, coming up with a winning strategy, sticking to it in a disciplined manner, maintaining the right trading mindset and a bit of luck. Read on to find out more about whether forex trading is profitable and how forex beginners can get started.
Key Takeaways
- Forex trading can be profitable with the right skills and knowledge.
- Statistics indicate that the majority of aspiring forex traders do not succeed, with some experiencing significant financial losses.
- It’s essential to have a basic understanding of the currency market. You should aim to enhance your technical and fundamental knowledge and skills as much as possible. This includes learning about technical analysis, fundamental analysis, risk management, and market psychology.
- The forex market poses multiple challenges to traders such as leverage risk, counterparty risks, platform malfunctions and unexpected bursts of volatility.
- Unlike stocks and futures that trade on exchanges, forex pairs are traded in the over-the-counter market without a central clearing firm.
Earn cash back on your FX trades
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Disclosure
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Contents
- Simply Put: Will Forex Trading Make You Money?
- How Making Money in the Foreign Exchange Market Works
- Who Can Trade Forex?
- How to Profit From Forex Trading
- Forex Trading Strategies
- Scalping and Day Trading
- Swing or Momentum Trading
- Trend Trading
- Scalping and Day Trading
- Compare Best Brokers for Forex Trading
- Is Forex Trading Right for You?
- Frequently Asked Questions
Simply Put: Will Forex Trading Make You Money?
The simple answer is that forex trading can make you plenty of money if you get in on the right side of the market and then take your profits in a timely manner.
Of course, you can also lose money just as easily by being on the wrong side of the market and cutting your losses or by letting a winning position turn into a losing one before you get out of it.
How Making Money in the Foreign Exchange Market Works
To make a forex trade, you agree to trade or exchange one currency for another at a particular level known as an exchange rate. Those currencies make up a currency pair, and the exchange rate of that pair fluctuates up and down depending on supply, demand and the market’s expectations of what relevant news means for that pair.
The 1st currency in a currency pair is known as the base currency, while the 2nd currency is called the counter currency. If you buy or sell a currency pair, then you respectively go long or short the base currency against the counter currency.
To forex traders, a dealing spread is the difference between the exchange rate you can buy at and the exchange rate you can sell at. The tighter that spread, the more competitive a broker is.
You can profit from a currency trade by either buying in a rising market or selling in a falling one. Fortunately for traders, many currency pairs show substantial market volatility or fluctuations. While these movements can mean profits or losses, depending on how they are positioned, it does at least provide the opportunity to make a profit if your market forecasts are typically accurate.
To make market forecasts, traders typically use 2 types of analysis. The 1st is technical analysis, which focuses on levels and movements in exchange rates and other market observables. This method seems especially useful for making short-term market forecasts.
The 2nd is fundamental analysis, which seems better for making longer-term forecasts. Fundamental analysts focus on examining news events and other information about economic and financial factors related to currencies and assessing their likely impact on the forex market.
Who Can Trade Forex?
The currency exchange or forex market used to be very exclusive. The ability to trade forex was largely accessible to major banks, corporations, fund managers and high-net-worth individuals who typically dealt in millions of dollars.
Fortunately for smaller retail traders, the rise of online forex broking over the past decade means that virtually anyone with a relatively modern computer or mobile device and access to the internet can now open up an account with an online forex broker.
This opportunity now allows virtually anyone to trade currencies in the forex market electronically via one of the many forex platforms available, with many traders choosing the popular MetaTrader platforms from MetaQuotes. Retail traders can also access competitive dealing spreads at many online brokers.
How to Profit From Forex Trading
As with trading in virtually any financial market, determining in advance what side of the forex market you should be on is the true challenge for a forex trader. You can increase your odds of determining the correct future market direction by doing a fundamental or technical analysis before entering or exiting a position.
You can also increase your chances of making money overall by taking advantage of a timely correct market call and by having the discipline to minimize your losses in case your view turns out to be wrong. Many swear by using sound money management techniques and having the right trading mindset to support profitability.
Forex Trading Strategies
Many successful strategies for trading forex exist, but not all of them are suitable for every trader. You will want to select one that best suits your particular situation, including your available time, personality type and risk tolerance. They will be covered below based on the typical time horizon involved, ranging from short to long-term.
Scalping and Day Trading
Both of these short-term trading strategies are usually followed actively during a particular trading session and generally do not involve taking overnight positions. This can be an advantage due to the reduced exposure to notable market movements while the trader is asleep or not closely focused on their trading screens.
Day traders establish positions during a particular trading session and exit them before that session ends. The forex market trades around the clock from Sunday evening to Friday afternoon EST, so you need to decide what trading session to operate in.
Scalpers are day traders who focus on taking multiple small profits on positions with an extremely short duration. They typically enter and exit trades in seconds or minutes, which is a very fast-paced activity that doesn’t suit everyone.
They usually trade while looking at price charts, need very quick reaction times, as well as tight dealing spreads and virtually instantaneous deal executions — so your choice of forex broker is very important. For example, a scalper might look for patterns with predictive value on very short term tick charts like the one shown below for EUR/USD to help inform their trading decisions. Here are some reviews about the best and most reputable forex brokers available.
Swing or Momentum Trading
Swing trading, sometimes called momentum trading, is a medium-term trading strategy that typically requires holding overnight positions. Swing traders can establish positions both in the direction of and against the underlying market trend.
This strategy generally focuses on getting into and out of trades based on technical indicators that provide a sense of market momentum and show buy and sell signals. You can use momentum indicators to identify overbought or oversold markets to sell or buy into, respectively. You could also try to buy ahead of support and sell ahead of resistance levels that appear on exchange rate charts.
Examples of popular momentum indicators could include the Moving Average Convergence Divergence (MACD) histogram or the Relative Strength Index (RSI). The 4-hour candlestick chart below shows the MACD and RSI displayed in the indicator boxes below the exchange rate for EUR/USD.
Trend Trading
This popular longer-term forex trading strategy involves following the prevailing trend or directional movement in the market for a particular currency pair. Trend trading often involves buying on pullbacks in up trends or selling on rallies in downtrends.
Once a position is established, you could then hold it until your objective for the trend is seen or the trend shows signs of reversing. Many traders use trailing stop-loss orders to protect profits in case the trend shows a significant reversal.
Trend trading typically includes technical analysis and review charts to determine what direction the underlying trend is moving in, and then aim to trade along with it. The monthly candlestick chart below for EUR/USD shows an upward trend in progress after a significant decline.
Compare Best Brokers for Forex Trading
If you think foreign exchange trading is right for you, and you want to get started right away, then you can check out any of Benzinga’s top picks for forex brokers below and start the process of opening an account today. You can also open a demo account to try the broker out and practice trading before committing any real funds.
Claim Exclusive Offers
get started
securely through Plus500’s
website
Plus500 is a CFD broker with a wide portfolio of 2800+ CFDs, 2700+ Shares, and a variety of Futures (Crypto, Metals, Agriculture, Forex, Interest Rates, Energy, and Equity Index). For those who are new to the market, CFDs are similar to binary options in the U.S. where traders take all-or-nothing speculation on the prices of certain securities like indices, commodities or currencies. While not legal to trade in the U.S., CFDs are legal in many jurisdictions across the globe and Plus500 offers a wide array of tradable markets using these instruments. U.S. customers can, instead, take advantage of the US-based Plus500 Futures platform.
Plus500 US offers a deposit bonus of up to $200, which allows you to trade without paying commissions until the deposit amount is used up. The bonus only applies to your first deposit. In addition, there are:
- No Data fees
- No Platform fees
- No Deposit and withdrawal fees (except wire withdrawal)
- No Inactivity fees
- No Routing fees
86% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Best For
- Traders looking for a smooth mobile experience
- Accepts U.S. forex traders
- Great mobile app
- Low spreads and commissions
- Unlimited demo account
- Fewer advanced trading tools
get started
securely through FOREX.com’s
website
The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account
FOREX.com is a highly trusted global broker for forex and CFD traders. With a massive range of tradable currencies, low account minimums and an impressive trading platform, FOREX.com is an excellent choice for traders searching for a home base for their currency trading. New traders and seasoned veterans alike will love FOREX.com’s extensive education and research center that provides free, informative forex trading courses at multiple skill levels.
FOREX.com is regulated by Commodity Futures Trading Commission (CFTC) and member of the National Futures Association (NFA) in the U.S. They also are regulated by the Financial Conduct Authority (FCA) in the UK among other regulators including CIRO, ASIC and more.
Best For
- MetaTrader 4 and 5 users
- Beginner forex traders
- Active forex traders
- Demo account
- Customizable charts
- Impressive, easy-to-navigate platform
- Wide range of education and research tools
- Access to over 90 currencies to buy and sell
- Leverage available up to 50:1
- Exclusive trading tools like TradingView
- Client funds are segregated from the platform’s funds
- Utilize and trade with TradingView charts
- Low forex fees
- Cannot buy and sell other securities (like stocks and bonds)
- Higher inactivity fees
- High stock CFD fees
Get started
securely through Trading.com’s
website
Trading.com is a highly regulated counterparty designed for a new generation of traders, offering easy and intuitive access to forex trading. To excel in the forex market, you need access to diverse currency pairs, robust trading platforms, reliable execution and a competitive spread. Trading.com excels in all these criteria, offering 65+ forex pairs and real-time market execution on the cutting-edge MT5 platform.
As part of its commitment to providing the best forex trading conditions, Trading.com offers ultra-tight spreads, zero commissions and competitive leverage on major currency pairs. Beginner traders with little or no experience will find its comprehensive educational resources valuable. A practice account with $10,000 in virtual money is available to help traders build confidence before trading live.
Trading.com is the ideal counterparty for diverse traders, including beginners and experts seeking optimum trading conditions. In this Trading.com review, we analyze the trading conditions, platforms, core features and overall product offerings to help you decide if it is a suitable counterparty to kickstart your forex trading journey.
Best For
- Experienced forex traders seeking counterparties that provide commission-free real-time market execution on the MT5 platform with ultra-tight spreads, competitive leverage and access to a diverse market
- Pattern-day traders and scalpers looking to optimize trading performance by capitalizing on real-time market execution provided by Trading.com
- Beginner forex traders can also find Trading.com ideal due to the flexibility of its practice account, which gives them ample time to build confidence and gain mastery of the trading platform before trading live account
- Dedicated support 24 hours a day, 5 days a week
- Fast and hassle-free account setup and onboarding process
- Liquidity across 65+ currency pairs, including majors like EUR/USD, GBP/USD and USD/JPY
- Leverage available up to 50:1
- New customers can receive a $100 tradable promotional credit
- Customizable and intuitive web and mobile trading platform for seamless on-the-go trading
- Free practice accounts with $10,000 virtual funds and no expiry date
- Cutting-edge trading platform — MetaTrader 5 is available on desktop mobile platforms as well as a web terminal
- Robust technical indicators and advanced charting for in-depth market analysis
- Excellent research and educational resources, including well-crafted articles, video tutorials, forex glossaries and calculator
- Trading.com is regulated by Commodity Futures Trading Commission (CFTC) and a member of the National Futures Association (NFA)
- Relatively new to the U.S. market
- No copy or social trading integration
- Promotional credit funds are not immediately withdrawable as certain terms & conditions apply
get started
securely through IG Markets’s
website
IG Group was established in 1974 and has over 313,000 clients worldwide. In 2019, IG launched its high-quality FX service in the US – empowering informed, decisive, adventurous people with access to over 80 currency pairs at competitive prices.
IG US operates on a commission-free basis whereby spreads are the main cost to trading forex, though overnight funding fees and currency conversion charges may apply. Spreads at IG can be as low as 0.8 pips for currency pairs like EUR/USD and USD/JPY (terms and conditions apply).
Minimum spreads for major currency pairs include:
EUR/USD: 0.8 pips
USD/JPY: 0.8 pips
GBP/USD: 1.0 pip
AUD/USD: 1.0 pip
Capital requirements are as low as 2%, or 50:1 leverage, for major currency pairs like EUR/USD.
IG offers forex trading on its own proprietary platform and application as well as MetaTrader 4 desktop, online and mobile platforms.
Best For
- Forex traders of all skill levels
- Traders who prefer a simple, clean interface
- Forex traders who trade primarily on a tablet
- U.S. based forex traders
- $0 minimum deposit
- $0 commission
- Industry leading educational resources
- Volume-based rebates
- Excellent trading tools
- Extensive range of tradable markets
- Regulated in eight Tier-1 jurisdictions, two Tier-2 jurisdictions and one Tier-4 jurisdiction
- Inactivity fees
- Limited product range on MT4
get started
securely through City Index’s
website
***CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
City Index is a leading provider of online trading services, specializing in Contracts for Difference (CFDs), forex and spread betting. With over 35 years of experience, City Index offers a wide range of tradable assets to cater to the needs of both individual and institutional traders.
The broker is available to traders from various countries around the world. Providing their services in multiple languages. The platform can be accessed in languages such as English, Spanish, German, French, Chinese, and Arabic, among others. This ensures that traders can navigate the platform comfortably and access all the necessary information in their preferred language.
City Index has offices in the U.K., Australia, and Singapore and is authorized by the following Tier-1 regulators: Australian Securities & Investment Commission (ASIC), Monetary Authority of Singapore (MAS) and the Financial Conduct Authority (FCA).
Best For
- Offers fixed and variable spreads + raw spreads in Australia
- Selection of contracts for difference
- Trusted broker owned by StoneX Group Inc.
- Spread betting available to UK clients
- CFD traders
- Over 13,500 markets to trade
- Repeated offers fixed and variable spreads
- City Index offers a wide range of exclusive trading tools, including performance analytics & smart signals
- Segregated client fund and negative balance protection
- A monthly inactivity fee of £12 is applied for accounts that are inactive for 12 months or more
- Forex spread is higher for MT4
Is Forex Trading Right for You?
Forex trading certainly has its risks and rewards. The currency market has made millionaires out of paupers and helped others lose their fortunes. Since most currency traders lose money, trade only with risk capital you can afford to lose completely.
Also, make sure to do everything in your power to learn how to trade and analyze the markets, develop a winning strategy and cultivate a successful trading mindset.
Frequently Asked Questions
Can you make money trading forex?
A lot of people make money trading forex, so it is possible to make money trading forex.
Answer Link
How do I start trading forex?
To start trading forex, you will need to find a licensed forex broker, create a trading account, and get educated on how the forex market works.
Answer Link
Can forex trading make you rich?
Forex trading can make you wealthy if you’re a hedge fund with substantial resources or an exceptionally skilled currency trader. However, for the average retail trader, it is more likely to be a challenging path that can lead to significant losses and potential financial ruin rather than an easy route to riches.
Answer Link
Is forex trading just gambling?
Forex trading may seem similar to gambling, but there are important differences. While gambling depends on chance and winning is often random, forex traders can use strategies and tools to improve their odds. Successful forex trading also requires discipline and self-control.
Answer Link
The post Is Forex Trading Profitable? by Luke Jacobi appeared first on Benzinga. Visit Benzinga to get more great content like this.