Forex trading has the chance to be profitable, but it’s not guaranteed that it will bring success to everyone. The market prospers on competition and predictions. This means not everyone can get the opportunity to win at the same time. Thus, a widespread question arises in many traders’ minds: is forex trading profitable or not?
In Forex trading, the profit of one person and the loss of another takes place at the same time. Success largely depends on prior knowledge, experience, and research, which not everyone engages in regularly.
To simplify, imagine you and a friend trading football stickers. You have a sticker of a less-known player, while your friend has one of a famous player. Your friend, a huge fan of the less-known player, agrees to trade.
After the trade, the famous player wins an award, skyrocketing the value of his sticker. You can now trade that sticker for 100 of the less-known players’ stickers, leading to a big profit for you but a loss for your friend.
So, is Forex trading profitable for everyone? No. But can it be profitable? Absolutely. Your overall profitability is determined by whether your total balance exceeds what you started with, not just the outcome of a single trade.
Why is Forex Trading profitable for only some traders?
Not everyone can make a profit trading forex online. We’ve previously used examples unrelated to currency, like football stickers, but now let’s look at a real currency pair.
Imagine you’re trading EUR/USD. This means you’re looking to buy USD using Euros. The market then pairs you with someone who wants to buy Euros using USD. Once matched, the trade is executed: you receive USD, and the other person receives Euros.
These trades occur around the clock, five days a week, and computers can process millions of transactions in minutes. If one trade won’t be profitable, then, another might be. If your total balance is higher at the end of the day than the amount with you start, it means you made a profit in Forex trading for that day.
How to stay profitable in Forex Trading?
There are various ways to increase your chances of staying profitable while trading forex. No method can be declared foolproof. It’s impossible to get success every time you trade. If a perfect technique existed, everyone would have used it, and the market would lose its ability to function.
Some of the successful forex trading strategies to help you stay profitable are listed below:
- Trading low volatility pairs
- Maintaining a diverse portfolio
- Planning ahead
Let’s explore these strategies in more detail:
1. Low-volatility currency pairs
Can Forex trading be considered profitable if the amount of gain is small? Absolutely. Many successful traders started their journey by earning small profits, and with time, they built their expertise and wealth over time.
A low-volatility currency pair has an exchange rate that rarely moves, and the changes are minor when it does. Though these pairs are safer and lower the risk of notable losses, the potential for higher profits is also reduced. Traders often use low-volatility pairs as a secure option alongside more volatile, higher-risk currency pairs.
2. Diversified portfolio
A diversified portfolio is a process where trading of multiple currency pairs happens instead of putting all your eggs in one basket. Traders usually do this in the case of uncertainty about the safety of their primary choice.
For example, a common strategy is when you trade one currency pair popular for its high volatility and potential for big returns, and the other that’s more stable with lower risks. So by doing this, if one trade doesn’t go well, you have another to fall back on. Think of it as having a safety net to catch you if your first trade doesn’t perform as expected.
3. Looking at the big picture
Let’s be focused and look at the bigger picture. Did today not go as planned profit-wise? That’s okay! You can always consider your weekly performance. Still not great? No problem, take a look at your monthly results. This perspective can keep expanding. As long as your overall balance is higher than it was at a specific point in time, you’ve achieved profitability, regardless of the tough days along the way.
How many people make a profit from Trading in Forex?
It might appear that for every trader making money in Forex, there’s one losing money, suggesting an even 1:1 ratio. However, the reality is far from this balance. Around 80-90% of the forex traders end up making a loss, leaving only 10-20% who make a profit.
Adding to this complexity is the varying amounts traders invest. Typically, those who are profitable tend to trade large amounts and thus earn significant profits. Meanwhile, traders who face loss usually don’t lose as much as they trade smaller amounts.
Is there a foolproof profit strategy in Forex?
If there were a foolproof way to always make a profit in forex, everyone would jump on it. However, once everyone starts using the same strategy, it loses its edge because, for some to profit, others must incur losses.
In Forex trading, a strategy is usually developed by a few traders and then shared within the community. As more traders adopt this strategy, the market becomes more predictable. Those who initially spread the strategy can anticipate market trends and trade accordingly, ultimately reaping long-term profits.
Conclusion
Ultimately, Forex trading can be highly profitable, but it presents its own set of challenges. To be successful, one must possess a combination of skill, knowledge, and discipline. While the forex market can yield significant returns, it also carries considerable risks that must be acknowledged and managed effectively.
By gaining a solid understanding of the fundamentals of forex trading, adhering to regulatory guidelines, and employing efficient risk management techniques, traders can increase their chances of thriving in this rapidly changing and dynamic market.