Indeed, Forex’s market has maintained tremendous growth since the start and continues to lure in a greater number of investors. Moreover, despite its steep learning curve, forex trading has been in soaring demand since the beginning of the novel coronavirus pandemic and its social distancing measures. Many people have wondered what chances are like in the Forex trading industry in 2022? Is Forex trade still profitable?
Forex trading can be profitable when you approach it as a business. However, accomplishing a certain level of success can be challenging. It is crucial to consider the timeframes to determine if forex trading is profitable. Being lucrative in the short run (days/weeks) is easy, but being profitable over the years requires having a system in place to manage risks and a significant amount of cash to leverage.
Is Trading Forex Profitable?
For a market that deals with around $5 trillion in volume every day, it makes sense that there are merchants that profit from Forex. If that was not the case, the Forex market would have already faded out and wouldn’t still be so popular.
Indeed, Forex is a significantly volatile and high-risk market. Whether traders make money day trading Forex, swing trading Forex, or with long-term investments, the risk will always be high, and so will the potential for profits.
It is crucial to consider the timeframes to determine if forex trading is profitable or not. For instance, it can be relatively easy for traders to be profitable in the short run when the period is measured in merely weeks or days. However, to be lucrative over several years, you should have a system to manage the risks and a significant amount of cash that can be leveraged.
Many retail traders cannot survive forex trading for over a few months or years. The majority of the people excitedly jump on the bandwagon of forex trading because they consider it a “Get rich quick” scheme.
Still, while you can surely earn a decent amount of money in it, forex trading will not make you rich unless you are an off-the-charts proficient currency trader. As you know, trillions of dollars go through the forex market daily. This is why the “most well-informed” merchants make billions.
In reality, most forex merchants lose money, and over 68% of all sellers report net losses at the year-end. The most crucial question traders must ask themselves is whether they have the appetite for bearing risk.
Not all traders will be profitable, and you must be prepared to face losses every once in a while.. Even the most successful merchants experience significant losses from time to time. Finally, it is up to you if you still want to keep going even after a string of losses.
How to Profit from Forex Trading
Like all other investments, Forex trade has its potential for loss or profitability and inherent risks. Knowing how to minimize these risks can play a significant role in determining if you will be profitable in Forex trading or end up with a loss.
To trade in the Forex market and gain profits, you must buy low and sell high. An important thing about the Forex market is that besides purchasing the assets, you can quickly sell them without owning them.
However, it’s also important to understand that millions of online merchants would earn significant amounts of money daily if profitable Forex trading was so simple. In reality, many Forex merchants lose a lot of money, and it can be challenging and time-consuming to start profiting.
Using some fundamental principles of trading psychology, risk management, and Forex trading, you can up your chances of becoming a profitable Forex trader. While these principles won’t ensure you’ll achieve significant profits in this gigantic and volatile market, it is bound to help.
1. Always use a stop-loss
Regardless of which trading strategy you use, you must always set your stop-loss. A stop-loss is a trading parameter that allows you to define your trade’s closing price. The exchange will then automatically close once it reaches that level.
After placing a stop-loss, you can rest assured that you will not lose any more money than you expected. This might not be applicable every time because every market, especially the Forex market, is erratic. Hence, you can always expect to observe price gaps.
Your stop-loss won’t be executed at your preset level when there is a price gap. Instead, it will be executed at the following available price. This is known as slippage.
2. Choose a reliable broker
Apart from a broker’s authenticity, you may want to be informed about their expertise, the kind of trading instruments they use, what kind of accounts you can open, the risk diversification opportunities offered to you, and the level of leverage provided.
3. Learn risk management
Proper risk management is crucial if you want to succeed and be profitable in forex trading. For this, you need to have a long-term vision and accept that you are likely to lose a lot of time in the long run.
Still, with proper risk management, none of the losses you experience will be devastating. Moreover, this outlook will help you recover from the setback quickly. Traders must not rely too much on leverage in the beginning. This way, they can preserve their capital and will not get exhausted.
4. Stay informed about the current market issues
Staying up to speed with the current news is an excellent way to profit in the Forex trade. The market tends to fluctuate drastically with any sort of announcement or news or due to the anticipation of any announcement or news. This is known as fundamental trading.
Even if you’re a technical trader, you must stay alert and watch out for any important event, as they are a key driver of causing significant changes in the market. Besides all the technical indicators indicating a long trade and a reliable trading strategy, you must check the Forex calendar to view if your exchange is well aligned with the latest news.
5. Don’t overtrade
There is a surplus of information online on Forex trading. As a result, it’s simple for starters to get caught up in overly complex strategies that can lead to making several mistakes. Hence, it is best for beginners to stick to swing forex trading and other similar strategies where they will not be making a significant number of trades simultaneously.
6. Learn all the time
If you approach forex trading as a pass time and not an actual business, you’ll probably lose a lot of money. Instead, you should be ready to put most of your time into this job and have a mindset that learns from every trade and move.
7. Keep your emotions aside
Although it sounds simple, forex trade has no room for letting your emotions get in the way. People mostly think of trading as a game where they have to outperform the marketplace. Once they begin losing the game, their nerves take control and let them down.
However, forex trading is no game, and traders must never treat it as a game. It is an interesting activity that is a combination of disciple and inquiry.
- Never fret about your losing positions.
- Never be furious at the market.
You should always rely on your analysis, comprehend them, and abide by your own set rules. This is the ultimate way to profit from Forex trade. Any emotion, sadness, excitement, happiness, or confidence can affect your trading and result in significant losses. Hence, it is crucial to keep them far from trading.
8. Take time to prepare yourself mentally
Most people tend to overlook the extent of mental capacity forex trading calls for. As a forex trader, you need to understand and realize that losing money in a limited capacity comes with the job. Traders must be mentally prepared to face multiple losses in a row and still keep working hard towards making a profit.
Trading Stocks vs. Forex: Which Is More Profitable?
Based on short-term stock prices, both trading stocks and forex are different kinds of trading. Trading forex entails fewer regulations and greater financial leverage than trading stocks, making it riskier but highly lucrative.
It is relatively easier to monitor the Forex market than stock markets, as there are just eighteen pairs of common currencies to trade as opposed to hundreds of thousands of potential stocks. However, one drawback of Forex trading is that it occurs 24/7, meaning you could be forced to work at odd hours to carry out certain exchanges.
For this reason, you must choose between Forex and stocks wisely, based on your disposable income, objectives, and tolerance for taking and bearing risks.
The Bottom Line
If you wish to try your luck at forex trade, you must ensure to use safety measures such as keeping tight stop-losses, limiting your leverage, and using a reliable and reputable brokerage.
Even though the odds may still not be in your favor, using the tips mentioned above can help you step up the playing field and make profits to some extent.