Is Trading in Forex Profitable? Best Techniques Disclosed

Is forex trading successful? There needs to be a more complex response to this topic since some forex traders successfully generate continuous profits while others are less.

To ensure that currency traders join this market with the appropriate mindset, this beginner's book aims to study lucrative forex trading tactics.

How Successful Is Forex Trading? Overview

Like any other investment sector, forex trading has the potential to be lucrative. But only under the condition that the trader understands how the foreign exchange market operates and that they have a well-thought-out strategy in place. After all, correctly predicting the future direction of a currency pair is the only way to profit in the forex market.

To put it another way, the trader needs to create more lucrative deals than losing ones to be profitable. This is a complex task in the forex market, primarily as many seasoned traders rely on sophisticated technical analysis to decide which trades to make. This entails researching currency pairs to forecast trends.

Since this research dividend might take years, a total newbie will likely have yet to learn how technical and economic indicators function. As an illustration, consider the GBP/USD chart shown above. According to the chart, the pair is currently trading at 1.1585, and each candlestick represents a 1-minute price movement.

Experienced traders can see from the chart that the GBP/USD pair has been in a persistent downward trend for some time. The good news is that it is still feasible to make money in the forex market by adhering to several risk-management guidelines and effective trading tactics.

For instance, beginners may want to concentrate on the fundamentals of currency research, such as monitoring changes in central bank interest rates and geopolitical developments. Additionally, newbies may consider using a forex copy trading platform. Investors can then mimic exactly the currency positions of a seasoned trader.

Study More: Read What is Forex Trading in our beginner's guide.

What Potential Profit Margins Are There When Trading Foreign Exchange?

Therefore, if forex trading is profitable, how much money can one reasonably expect to make? Notably, there are other factors to consider when estimating prospective profit margins in the FX market.

The trader must evaluate their desired currency pair, prognosis, and stake.

For simplicity, let's assume that the trader chooses to stake $1,000 in USD/CHF. The trader places a purchase order because they think the price of USD/CHF will increase.

The price of USD/CHF is 0.8601 when the transaction is completed.

After two hours of trade, the USD/CHF exchange rate is at 0.8773.

The trader cancels the position to achieve a profit because this indicates a 2% price gain.

As shown above, a profit of merely $2 results from 2% growth on a $100 investment. This indicates that the trader would need to consider other possibilities to make the process viable when trading for profit full-time.

Applying leverage to the position is one of these options. This will increase the size of the share through a short-term brokerage loan, as we will describe in more detail later. Trading major currency pairs can be done with leverage up to 1:50 for retail clients in the US. As a result, in the previous example, a profit of $2 at an influence of 1:50 is increased to $100.

The frequency with which trades are entered is another aspect to consider when estimating possible profit margins when trading forex. For instance, a day trader might open and close several positions in foreign exchange before the trading day is over. However, a swing trader frequently holds onto a currency position for several days or weeks.

Ultimately, it depends on how much a forex pair can fluctuate in a single day. For instance, significant couples like EUR/USD and USD/CHF frequently change by just a few percentage points. Exotic pairs, like USD/ZAR or EUR/TRY, are significantly more volatile.

How to Trade with the ninjatrader ttm squeeze indicator!

What are the risks of trading currencies?

After briefly answering the question, "Is forex trading profitable?" we can now examine some of the main hazards that should be considered before investing in this market.

First and foremost, there is a risk component to all types of trading, including forex. If a trader speculates incorrectly on a forex position, they will close the deal at a loss.

Consider, for illustration, a novice swing trader who staked $10,000 on a GBP/USD long order one month prior.

The swing trader would now be looking at a loss of more than 4% as of the time of writing.

This is a significant deal in the forex market, especially when leverage is involved.

As a result, ensuring stop-loss orders are constantly used is the most excellent method to prevent significant losses.

Trading in FX carries the additional danger of being highly unpredictable. Even with major currency pairs, this frequently results in uncomfortably high volatility. Seasoned currency traders continually seek out tumultuous market situations since they offer more chances to enter profitable positions.

Overusing leverage in forex trading may be the most considerable risk. In contrast to the EU, where influence is limited to 1:30, US retail traders have access to leverage of up to 1:50. This implies that the trader can significantly increase their position. As a result, using a lot of force will also make losses bigger.

Consider a trader who uses a leverage ratio of 1:50 to open a position for $100,000.

In other words, the trader needs to invest $2,000 upfront in executing their strategy.

As a result, the trader will lose their entire $2,000 investment if the position decreases by 2% because the broker would instantly liquidate it.

Unfavourable losses can once again be prevented by learning risk management in forex.

Reviews of the Most Successful Forex Trading Techniques

Traders require a plan to determine whether forex is profitable.

Therefore, take into account one of the following tactics before creating a forex trading success plan:

1. Day Trading: Taking and Closing Several Forex Positions in a Single Trading Day

Day trading is the first tactic to take into account. Briefly, day traders hold a position for a few hours or minutes. The main idea is to ensure the forex position is closed by the conclusion of the trading day. For instance, a day trader would try to go long on GBP/USD and complete the work when it has made gains of 0.4% a few hours later.

Importantly, since day trading is short-term, profit margins will be minimal. On the other hand, traders frequently open numerous positions every single day. This implies that little earnings might mount up quickly. Day trading is also one of the least dangerous tactics that can be used in the forex market.

This is because day trading positions are only held for a brief period, making extremely volatile movements unlikely. This is particularly true when concentrating on essential currency pairs that draw substantial trading activity and liquidity. Day trading exotic currencies will significantly broaden the risk range.

The fact that day trading is only appropriate for technical traders should also be considered. This entails investing the trading day in price chart analysis, using technical and economic indicators, and searching for patterns. Therefore, day trading can be more appropriate if you have prior knowledge of the currency market.

2. Scalping - Trying to Get Consistent, Small Gains From Little Price Movements

Even worse than day trading, scalping is a shorting forex method. In a nutshell, scalping aims to enter and leave positions quickly to make tiny profits. A successful forex scalping method may open dozens of trades daily. When a scalper generates a surplus of profitable transactions, the day will end in profit.

Even more so than day traders, forex scalpers need a solid grasp of how to use technical indicators in their trading. This is so the trader can profit from a pattern of recent short-term consolidation. Let's consider where EUR/USD fluctuates within a minuscule 0.05% range for several days.

A scalper would find this to be very advantageous. For instance, the scalper can enter an appropriate buy order at the lower end of the range. A sell order may be entered at the upper end of the content. The scalper would also need to enter stop-loss orders on both sides. This guarantees that the scalper won't suffer a significant loss.

Because of the present low-profit margins, a trader's entire profit for the day can be destroyed by a single, significant loss. Another thing to keep in mind concerning scalping is the need for a broker who provides exceptionally tight spreads and low commissions. Making scalping profitable also demands a sizable account balance or leverage.

3. Swing Trading - Trade Foreign Exchange Over Several Days or Weeks With More Flexibility

The ideal approach to use for total beginners is swing trading. The main explanation is that swing traders have significantly more flexibility than day traders or scalpers. This is because swing traders can hold a currency position for a few days up to several weeks.

As a result, even though the trading day is about to finish, there is no urgent pressure to close the trade. Nowadays, short- to medium-term trends are the main emphasis of swing trading. Therefore, the aim is for the swing trading position to be open for the duration of the indicated direction.

The swing trader will close the first position and open a new one when it indicates that the trend will change. Let's take the case of a swing trader who opens a short post on the GBP/USD pair at 1.38. The GBP/USD pair maintains its downward trend for two weeks.

As a result, the trader expects gains of 7%. GBP/USD presently has reached a bottom, signalling the beginning of a trend trading reversal. A swing trader will initially close their GBP/USD short account at 7% gains keeping this in mind. The swing trader will then take a long position on GBP/USD to profit from the recently discovered trend.

4. Long-Term Forex Trading using Positional Trading

Long-term trading and forex are two topics that are rarely brought up together. However, some forex traders may approach the market this way. Said, investors using a positional trading strategy have the flexibility to maintain open forex positions for several months or even years.

When trading positions, there are several advantages and disadvantages to taking into account. In the first place, it is undeniably true that some currency patterns persist for several years. Take the GBP/USD pair as an illustration. The GBP/USD exchange rate was trading in the $1.5–1.6 price band before the Brexit vote in June 2016.

GBP/USD was trading at $1.49 on the actual election day. However, after it was revealed that Brexit had won the referendum, the GBP/USD exchange rate began a protracted downward trend that has persisted to this day. Although other economic factors contribute to the decline of GBP/USD, Brexit is a perfect example of how positional traders think.

For instance, a positional trader would have undoubtedly placed a proper short-selling position as soon as the referendum vote was known. The main issue with forex positional trading is that fees may build up rapidly. After all, overnight funding fees are charged by forex brokers for each day the position is open.

Note: To have exposure to a long-term trend without paying the hefty fees associated with positional trading, it would be worthwhile to look at other financial products. ETFs and futures are also viable options in this regard.

5. Use the 50-Pips a Day Forex Strategy to get 50 pip gains daily.

Ever questioned what a forex pip is? This method aims to generate a daily forex trading profit. In other words, the trader will try to produce 50 pip gains each day. A forex pair's minute price movement is calculated using a unit of measurement called a pip or percentage in point. Consider the AUD/USD exchange rate, which is now at 0.6791.

A 3-pip price increase would occur if AUD/USD rose to 0.67920. To hit their daily goal in this example, the trader would have to gain 47 pip more in profit. The long-term viability of the 50 pip per day technique could be better because it is preferable to close positions based on individual analysis and current trends rather than a daily profit target.

Note: If you try this approach, using a profit calculator for forex trading could be worthwhile.

6. Daily Chart Forex Strategy: Take Advantage of Pricing Trends Every Day

The daily chart changes are the primary emphasis of this method. As a result, picking an appropriate pair and switching the candlestick timeframe to daily is the first step. The price and trending lines will be visible considerably after each trading day.

The main goal is to determine what trends can be drawn from the daily price changes of the relevant pair. Several fundamental technical indicators, such as the Fibonacci retracement, can do this. This will make it easier to see if the daily trend is getting close to a reliable support or resistance level.

7. Copy Trading - Follow an Expert Forex Trader's Trades

When first joining the forex market, it is undoubtedly true that a bit of experience is worth a lot more than a lot of theory. In this aspect, a Copy Trading tool may be more appropriate for those who need to gain prior experience buying and selling currency pairings. For instance, it is possible to mimic a seasoned forex trader's buy and sell positions at the licensed brokerage eToro.

This gives new traders access to a fully automated forex trading procedure, eliminating the need for order placement and technical or fundamental analysis. For instance, the selected trader's 7% capital risk on a short position in the GBP/EUR will be reflected in the eToro user's account. With no additional fees, the minimum stake for each trader cloned is a mere $200.

Remark: It is advisable to diversify among numerous successful forex traders while utilizing the eToro Copy Trading service.

8. Margin Trading: Use Leverage to Enter Higher Value Forex Positions

Most online forex brokers offer leverage, a feature that enables traders to enter positions with more capital than they have in their accounts. As we previously indicated, when trading key currency pairs, retail clients in the US and EU have access to leverage of up to 1:50 and 1:30, respectively.

For instance, a position worth $2,500 might be opened with just a $50 account balance and a leverage ratio of 1:50. Due to the low available profit margins, leverage can be helpful when a trader's account balance is insufficient to make forex trading profitable. However, it is essential to use power sensibly.

9. Semi-Automated Forex Trading using Forex Signals

Forex signals are a different tactic to consider while trying to succeed in this trading business. Simply put, signals are provided by independent analysts who continuously monitor the forex markets. Members who subscribe will receive trading recommendations from the signals provider in exchange for their subscription fee.

This market's top forex signals should include all the details needed to execute a trade with an online broker. For instance, Learn2Trade sends its premium members up to 5 calls daily, each specifying the pair to trade, the entry price, and the stop-loss and take-profit orders to use.

10. Automated Bots - Enable a 24/7 Trading Bot

An automated trading bot is a final approach to consider when evaluating the forex market's profitability. The main idea is that the bot will trade on the investor's behalf. To name one example, it will base trade decisions on pre-established criteria, such as buying GBP/USD when the RSI dips below a value of 25.

Automated bots are intriguing to passive investors on the one hand, mainly because they can trade around the clock, seven days a week, without feeling tired or emotional. Bots are known to malfunction so that the trading account could be lost entirely in one go. Because of this, many people favour copy trading.

Forex bots can, however, be deployed into MT4. After that, the investor can link MT4 to a licensed forex brokerage account. This platform supports one hundred thirty-eight forex pairs, which offer 0% commission trading.

Find Out More: Do Forex Trading Bots Make Money? Learn more in our algorithmic trading guide.

The Best FX Brokers Revealed for 2022: Where to Trade Forex

The issue, "Is forex day trading profitable?" has now been addressed in this guide. We also discussed 10 of the most successful forex trading techniques you might want to use.

Finally, we'll quickly go over where you can trade forex safely and efficiently.

The first is eToro, a free forex broker with copy trading tools.

A reputable brokerage that provides Copy Trading tools is eToro. Users of eToro can trade FX passively, thanks to this. Any orders placed by the selected trader will be automatically copied to the eToro portfolio.

Just $200 in the capital is needed for each deal in this. Additionally, traders can purchase and sell currency pairs themselves on eToro. The broker uses a spread-only business model that is affordable and starts at one pip.

eToro is regarded as a safe and secure forex broker because the SEC, ASIC, FCA, and CySEC govern it. Opening an eToro account only takes a few minutes, and available payment methods include bank wires, debit/credit cards, and e-wallets.

Conclusion

We have examined whether forex trading is profitable in this beginner's tutorial. To sum up, forex trading can be beneficial, but investors must make sure they have a risk management strategy in place.

Consider signing up with eToro to start commission-free FX trading immediately. This licensed broker provides leverage support and narrow spreads across 49 currency pairs.