expand/collapse risk warning

Trading financial products on margin carries a high risk and is not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.

Trading financial products on margin carries a high degree of risk and is not suitable for all investors. Please ensure you fully understand the risks and take appropriate care to manage your risk.

Your capital is at risk.

Forex Trading

Can Forex trading be profitable?
We answer your questions.

A Forex trading nbook with a mountain in the background. Relevant to forex trading.

Can Forex trading be profitable? It’s one of the main questions that anyone considering becoming a professional trader asks. The possibility of becoming rich through foreign currency trading is very lucrative. However, like any form of investment, Forex trading comes with its risks, and there is always a chance that you could lose more money than you gain.

Therefore, to give yourself the best chance of success you need to develop as strong an understanding as possible not only about what forex trading is but also about how to mitigate those risks in the most effective way.

An Introduction To The Basics Of Forex Trading

Before we get started, let’s look at the basics of forex trading. Essentially, forex trading involves converting one currency into a different one in order to make a profit. Forex traders trade forex pairs – two currencies which are traded one against the other.

With hundreds of potential combinations, or instruments, there are some that are more popular than others including the Euro/US Dollar, US Dollar/Japanese Yen, and British Pound/US Dollar pairings. Currencies are always traded in lots – currency batches used for standardising forex trades.

Since price movements in the foreign exchange market are typically small, lots are usually large with a standard lot being 100,000 lots of its base currency. If you think the price of a currency will rise, you buy the currency pair. Conversely, if you think it’s going to fall, you sell the pair.

Understanding the spread is key in forex trading. This refers to the difference between the buying and selling prices. In order for a position to make a profit, the market price has to rise above the buying price or, alternatively, drop below the selling price.

Leverage and margin are also important elements. The margin is the amount of initial deposit required to open a leveraged position and maintain it. So, for example, if a trade requires a margin of 3.33% to open, only £3300 needs to be deposited, not £100,000.

Contracts for difference are also important to understand. These products pay the different between the opening of a trade and its closing settlement price. Also known as CFDs, they are a popular way to speculate on the markets, capitalising on the prices of the rapidly-moving worldwide financial marketplace.

There are some key differences between trading forex and trading other assets. For a start, forex markets are available to trade 24 hours, five days of the week, unlike the stock market, because of overlaps between the different time zones.

Also, while there is a huge number of assets to trade in the forex market with over 330 different currency pairs to choose from, only a handful of “major” pairs tend to be frequently traded. This gives an advantage over the broad scope of the stock market, since they can choose to trade just a small number of consistent pairs instead of having to choose between a host of emerging, new, and existing stocks.

While there are many opportunities for trading in the stock market, the trade volume of the forex market is far greater too. Thanks to the volatility of the forex market, traders can buy and sell assets rapidly with the high volatility offers benefits for those who prefer short-term trading.

This makes forex a better choice for those who enjoy this style of trading than the stock market which is best for long-held positions.

Forex Traders Through History

History has seen some impressively successful forex traders including:

George Soros
This financial expert set up Soros Fund Management and became internationally famous after netting $1 billion profit after his short-sale of $10 billion in GBP in 1992 and causing the Black Wednesday phenomenon.
Andry Krieger
Having acquired a reputation as one of Banker’s Trust’s most successful traders, Krieger’s capital limit was increased to $700 million which allowed him to reap significant profits from the Black Monday 1987 crash to the tune of $300 million.
Bruce Kovner
Having entered the forex world relatively late at the age of 32, Kovner purchased soybean futures contracts with borrowings from his personal credit card and scooped a profit of $22,000. Until his retirement in 2011, Kovner was a major forex player, having established Caxton Associates and turned it into an incredibly successful macro hedge fund.

Capitalise on volatility in Forex markets

Take a position on moving Forex prices. Never miss an opportunity.

Sign up

What Are The Elements Necessary To Succeed In Forex Trading?

If you’re asking “is forex trading possible?” you need to understand the five key elements that are necessary to get started with forex trading. According to “Finance Monthly”, these elements are:

Developing Your Trading Plan
You need to create an effective trading plan that outlines your risk tolerance, strategy, and investment goals. Your plan keeps your disciplined and ensures you adhere to your strategy of choice.
Controlling Your Emotions
One thing that is absolutely vital is to control your own emotional responses that could cause impulsive decisions to be made. Trading forex involves remaining rational and calm at all times to avoid making poorly-chosen trades.
Continue Learning
Before you invest in any instrument, you need to do some in-depth research into both countries and the factors affecting their currency’s value in order to make well-informed decisions and minimise the risk of loss.
Have Patience
Rather than expecting to make a quick profit, you should focus more on long-term achievements. Taking small losses can help you avoid larger ones, and sometimes taking the long viewpoint is essential to pick the perfect chance to enter into a trade.
Be Realistic In Your Expectations
Having realistic expectations is essential for success. If you expect to make profits quickly and easily, you’ll be disappointed. You need to understand that trading forex is challenging and complex, and it will take effort, time, and learning to achieve success.

Tips To Get Started With Forex Trading

If you’re ready to get started as a forex trader, here are a few simple tips to help you get your endeavour off the ground:

  1. Open up a CFD or spread betting trading account. It’s wise to open a demo account first so you can practice and become more confident before actually committing any of your own money.
  2. Do your research to choose the best FX pair for you to trade then decide whether buying or selling is the best choice.
  3. Make sure you’ve chosen a strategy and make sure to adhere to it at all times, never overlooking the importance of risk management.
  4. Place your trade with a defined entry and exit point.
  5. Close the trade when you reach your forecasted limit and reflect on how well you performed.

Tips For Greater Success In Forex Trading

If you’ve already dipped your toes in the water of forex trading but failed to achieve success, here are some tips to help you become more successful:

Set yourself trading times

As the forex market is open 24 hours a day all week long, it is possible in theory to trade at any hour of the day or night. While this offers some advantages, it can also lead to overtrading, and suffering from higher losses. It’s important to set yourself some boundaries in order to avoid this occurrence. Choose your preferred trading hours and adhere to them – this can help to mitigate your losses.

Trade several currency pairs

A lot of traders trade just a single currency pair (often EUR/USD). While this keeps things simple, it’s also a mistake for two reasons: you can wait several days before your strategy delivers a trading signal, and you’re also exposing yourself to cluster risks. The best course of action is to trade several currency pairs, including USD/JPY, USD/CHF, AUD/USD, and GBP/USD. That will give you a higher chance of your preferred trading setup appearing several times each day and reduces exposure to cluster risks.

Pay closer attention to Pivot Points

Whether you’re a longer-term or day trader, it’s key to pay closer attention to daily pivot levels for the simple reason that other traders are also watching them. Many traders place their orders at pivot levels which explains why markets often make the turns that they do.

While pivot trading shouldn’t necessarily be your sole trading strategy, it’s still important to pay close attention to daily pivot points as they will indicate whether the market could reverse or whether a trend could continue. Using pivot points as a technical indicator in conjunction with your chosen trading strategy can help you with your trading.

If you take these tips on board, you should be able to navigate the forex market more easily. Although the forex market can be a very lucrative one, it requires a careful, knowledgeable, and properly thought-out approach to ensure that your trades go well and you don’t make a major financial loss.

Overall, the answer to the key question “can forex trading be profitable?” is a qualified yes. Although the foreign exchange market can be a very exciting market to trade, you must put in the groundwork first in order to be able to take advantage of all that this lucrative marketplace has to offer.

Without the right approach, you could find that, far from making you rich, your foray into forex will leave you out of pocket.

Not investment advice. Past performance does not guarantee or predict future performance.