Is Forex Trading Profitable? – this question can be pop-up in your head for two main reasons.
One is, you are trading for a quite sometimes now, but you are still struggling to find the profitable path and as a result of that this question pop-up in your head.
You are just a beginner to trading forex and you search the web to find out what is Forex trading and how does it work and eventually you’ll come across with this question somewhere around the web.
If you do a quick google search about this question, you’ll find that pretty much every trading related forum, Reddit and Q&A site like quora have an engaging page related to this topic – Is forex trading profitable or not.
Simply put, Yes, Forex trading is profitable.
The long and complicated answer is also yes, trading in the forex market is profitable but chances are you won’t achieve consistent profit if you don’t have solid patience, disciplines and emotional stability.
In another degree, I can say that those who master the psychology side of trading have higher chances of becoming a profitable trader.
While we agree that profitable forex trading is possible, we also need to aware of the fact that the number of losing percentages of retail traders is around 90% to 95%. Which means only a handful of traders will success, right?
In fact, A research done by the ESMA regulation in the European Union found that around 70% of retails traders won’t achieve success in trading. (This research is done by cooperating with five biggest forex brokers)
According to the above chart, all the five brokerages report similar data, So it is reasonable to assume that around 70% of all retail forex trader lose money.
Since percentages of losers are very similar, we can assume that it is traders behaviours that lead them to unprofitable trading and not the brokers, who are responsible for their clients’ losses.
With these things in mind let’s move forward and talk about what we are here to talk about.
Specifically in this article, we are focus on two main topics.
- How Much Money Can You Earn From Trading Forex
- How to Become a Profitable Forex Trader (Especially for beginners)
But Before that, Let’s Find Out…
Is Forex Trading Right For You?
This is a question you should ask from yourself. Because you know yourself better than anyone, right? Especially your emotional side.
Most of the trading Gurus will tell you that you should start trading forex and join their trading course, So they can teach you and make you a consistently profitable forex trader.
Some of the good marketers ask you to buy their magic trading system, so you can profit from it, even when you’re sleeping.
But, Before paid for anything, read and watch free stuff out there. The truth is there are lots of free contents out there which are 100X better than paid contents.
Also, open a demo trading account and trade it for a while and taste the market, because you have to first trade it to know whether it’s right or suitable for you.
Remember That – Market itself is also a great teacher.
With that said here are a few reasons why forex trading might be suited for you.
You Like the Freedom That Comes Within the Trading Forex
For traders who would like to trade part-time, the Forex market offers great flexibility, and as there are no market opening or market closing times the opportunity to make potential profits is 24 hours a day 5 days a week.
You Like Being a Risk Taker and a Risk Manager
Since the Forex market can be volatile, you will need to be able to handle a certain amount of risk.
Before entering the market, for example, you should always decide your stop-loss and take-profit levels. In this way, you will already know how much you are willing to risk and how much from your place you would expect to earn. In the world of forex trading, this is called the risk to reward ratio.
It’s critical to have a sound risk and money management plan with rules to follow in order to better protect your trading capital.
You have Enough Dedication and Patience to Follow Your Trading Plan and You Trading Rules of Engagements
If you want to be profitable, you need to follow up on a trading plan and to be patience in opening/closing your positions, depending on your rules of engagements.
Remember That – The key trading ingredients are determination, persistence and devotion.
You Want to Take the Advantage of the World Biggest Financial Market and Its Volatility
In the last 20 years, the Forex market has been steadily growing. There is no doubt about it.
According to the 2016 Triennial Central Bank Survey of FX and Over-the-counter (OTC) Derivatives Markets from the BIS, foreign exchange trading averaged $5.1 trillion per day in April 2016.
This higher volume in forex market creates endless trading opportunities for traders every day. With the right trading plan and right trading behaviour, you can take advantage of not all these opportunities but quality and higher probability trading opportunities.
Okay, these are the most common things that drive the interest of being a successful forex trader. Maybe you also choose to trade forex because of one of the above reasons.
However… If you fall under any of the categories listed below, there might be a lesser chance of making a success of it.
You Trade With Money You Can’t Afford to Lose
Since the Forex market can be unpredictable, there is always a chance of losing money when trading a currency pair.
So this high degree of risk means that you need to be careful that you don’t use the money that you use to survive on – that sounds a weird thing to say, but make sure you’re only trading with money that you can afford to lose!
You’re Willing to Start Right Away Without Investing Time on Learn About How to Trade Forex
You need to know what the fundamentals of markets impact and how they work before even considering trading.
If you have no trading experience and do not know how markets operate and relate to each other, Forex trading might not be right for you – at least not yet.
You Can’t Handle Emotions Ups and Down Especially When Losing Trades
When placing trade there are two main outcomes, Win or Loss. Since losers are inevitable in Forex trading, It’s fine to have losing trades along the way as long as you’re maintaining decent risk to reward ratio.
In trading, You need to quickly identify when you’re wrong and cut your losers early as possible. You need to treat losers just like you treat profitable trades. This is a crucial skill every trader must master.
You Are Risk Averse
The forex market has higher volatility and it’s always changing that create endless trading opportunities for us every day to get the advantage of. Since there are lots of trading opportunities, we can gain huge returns, right?
Greater returns always come with higher risk within it. That is why rather than aiming for higher return, It always better to aim for higher Risk to Reward ratio.
So, there you have it – the most common factors that decide whether trading success is possible or not for you.
Now, You might be wondering, If I fall under any of these categories, trading is not for me, right?
No, All of these four factors can be overcome. So no worry.
If you come into forex trading because of the flashy and luxury lifestyle that traders post on social media, then this is the main factor that holding your back from achieving trading success.
Which mean you have to get your expectations right.
Let’s talk about this briefly and then move on to the exciting part which is how much traders can earn.
Misconception About Forex Trading
Many people come into the forex trading with a wrong mindset.
They think that they can learn a few trading strategies from youtube or anywhere around the web and they will be profitable.
The worst thing is that some of the beginner traders even quit their job to trade forex after having two or three profitable months.
But the truth is, It is not that simple or easy as many people showed in Instagram or Facebook.
Anyone can claim to be a profitable trader after having one or two profitable trade. But the real challenge is, Can they keep doing this consistently?
That is the question we need to find the answer for.
So, Never come into forex trading with GET-RICH-QUICK Scheme mind-set.
And never believe someone who tried to selling you dreams. They are probably good at marketing not for trading forex.
With those things in mind, Let’s talk about the idea of Trading for A Living.
The Reality of Trading For A Living
The Idea of trading for a living is great,
- You Have Freedom
- You are your own boss
- You can work on a routine you choose
- You can trade on anywhere and anytime and so on…
These are great things that come from forex trading.
When we consider the psychology side, It is hard. Why?
Forex market is consistently moving and there some months market showing good movement and some month with flat and unreadable movements.
This affects your trading strategy as well. There are some green month and red months. That is normal as long as you complete the year in a profitable way.
It’s okay to have an unprofitable month if your financial liabilities are low.
But if you have financial liabilities, unprofitable months are going to hurt you differently and ultimately this also ended up affecting your trading as well.
And the end result is, your trading becomes less objective.
So, what is the trading object here?
For me, my trading object is to complete each year with a decent ROI (It is around 40% – 70%). Also, as a rule, I withdraw money from the trading account only twice a year. This way I can end my year objectively.
Now think about for a moment, if all of your financial liabilities are depend on your trading income, How would you complete the year in an objective way.
Now you probably wondering, is trading for a Living is possible?
Yes. It’s possible and I’m living proof of that.
But, Here is the thing – You cannot make a living on a small trading account. For that, you need to grow your trading capital which required lots of hard work.
So how much trading capital do you need to make a living from trading?
Okay, Let’s find out that.
How Much Do Traders Earn?
Simply put, there is no firm answer to this question.
Trading income is heavily based on one’s performance and the Trading capital they have.
Let’s take an example:
Let’s assume that “Trader A” has a trading account with $10K USD and he makes around 50% per year which mean Trader A will earn $5K USD which is not enough to live on, right?
But if we compound his return over 10 yearn he will gain a good amount of money. Let’s see (We will use money chimp compound interest calculator here).
See, Over the course of 10 years, he turned $10K into $576K which is phenomenal gain, right? Trader A’s trading capital is now worth $576K.
Now we know that Trader A is making around 50% ROI annually and now if we take his current trading capital, He will be able to make $288K annually which is great income, right? Also, we can live on that income too.
I think you got the idea here.
Trading is a long term game. Since you gain consistent result annually you always can compound your trading result and gain a reasonable return.
So, the first 5 to 10 is the years you have work hard stay patience as well as disciplined. After those hard years, forex trading becomes another – not an ordinary – source of income. For achieve that you need to have a BURNING DESIRE inside of you.
Let’s see what make you a profitable forex trader.
How to Become a Professional Forex Trader
Achieving forex trading success is not a linear path. It has lots of ups and downs. The hard works, patience and disciplined is only give you a side push along the way.
Then what is it actually helps us to become a professional forex trader?
It is additional knowledge which helps to span your trading knowledge, yeah it helps but it not the defining factor which helps you to become a professional forex trader.
It’s the ENGAGEMENT.
Let me ask you a question. Who can we call as professional forex traders?
The answer is, A good trader is not an expert in financial, economy and fundamental analysis side of thing.
A good trader is someone who talented at placing and managing trades. It doesn’t matter if he/she has in-depth knowledge about the economy or financial.
So question is, How we can create such a skill level. Simple,
You have got to create engagement with the forex market.
So as a beginner forex trader, this is the best way to gain experience out of the forex market.
So how to create engagement. Here are a few steps to get started.
- Find a trading methodology that has been proven to work. Also, make sure that the methodology you found is suited to your personality as well.
- Put reasonable money to your trading account which allows you to play with different position size and risk levels. This helps you to craft your Money and Risk management side of things.
- Then make sure to execute every trade signal your trading system identifies. Don’t spare in weighing, judging, doubting, perfecting and fine-tuning… Just do it!
- Make sure to maintain low risk per trade. This allows you to execute lots of small positions.
- Have a trade journal and record everything in there. This allows you to evaluate your performance and you can learn from the mistakes you made.
Make sure to get these things right. I’m not saying that you should catch every movement out there or stay in-front of your trade screen all day.
What I’m saying is …
The more trading opportunities you get, better! It helps you to get more experience, it helps you to taste winner and loser. You may be thinking what happened it I ended up overtrading. That’s not a problem as long as you are taking trades based on your methodology and trading rules. Also, make sure to have a well-organized trading routine.
Perfection is not present in forex trading. Therefore never wait for perfect a trading setup to be present. Even it present only a handful of traders know how to take advantage out of it. Hence, keep in mind that every trading signal that valid to your trading system is worth taking. This engagement allows you to learn forex fast than the rest of the trade who wait for the perfect trading setup to be present.
So what is the best outcome as engagement traders – more trading opportunities and trading frequently. When those opportunities are present you have to be there, available and ready!
Remember that engagement creates courage and confidence, these qualities when transformed into habits, are very powerful.
Simply put, be engaged with the market with proven strategy and tight risk management in mind.
Especially for the beginner trader, engagement is the only cure. It helps you to master the market.
Speaking about trading strategy, Here is one of our trading strategy which is proven and allow us to gain consistent results.
Finally, I hope you got the answer to what you seek.
So let me know in the comment section: Is Forex Trading Profitable or Not?
Also, Keep in mind that the best question is not the above one.
The best question is – Should I be Trading Forex? And if so, How Can I Trade Forex Profitably?
I hope you learned something valuable from this article. If so, please help us by sharing this article. Remember, Sharing is caring.
Related reading – How to Control Emotions Ups and Down When Trading Forex.
Related reading – 17 Unknown Forex Trading Secrets Every Trader Should Know About
Want to learn more about Forex Trading – Head over to our trading blog.