Is Forex Trading Really Profitable? Over $6.5 trillion is traded in the forex market every day, making it one of the most lucrative markets in the world. Forex trading, on the other hand, isn’t for the faint of heart; there is a great deal of uncertainty and complexity. Predicting how much a novice trader will earn is impossible, but all the risks are clearly laid out from day one.
Forex trading has been in high demand since the COVID-19 pandemic and its social distancing measures began, despite its steep learning curve. However, what are your chances of success in the foreign exchange market in 2021? Is Forex trading profitable? We’ll answer this fundamental question in this article.
- 1 Is Forex Trading Really Profitable?
- 2 There are many ways to make money in the Forex market.
- 3 Are There Any Requirements for Forex Profitability?
- 4 How Leverage Affects Your Profits in the Forex Market.
- 5 Example of a Losing Leveraged Foreign Exchange Trade
- 6 An example of a profitable leveraged Forex trade.
Is Forex Trading Really Profitable?
There are a lot of people who see forex trading as a “get-rich-quick” plan. However, if you’re an exceptional currency trader, forex trading can make you a decent amount of money—but it won’t make you rich. The forex market handles trillions of dollars every day, as we’ve already mentioned. As a result, it’s no surprise that the most knowledgeable traders make billions of dollars.
The forex market handles trillions of dollars every day, as we’ve already mentioned. As a result, it’s no surprise that the most knowledgeable traders make billions of dollars.
At the end of the year, 68 percent of all forex investors report a net loss in their accounts. Another way to look at it is that only one out of every three traders loses money. As a matter of fact, that’s where you want to be.
There are many ways to make money in the Forex market.
There is no limit to the amount of money you can make in forex trading if you put in the effort, unlike a traditional paycheck. As a result, you have no guaranteed income and your earnings are influenced by a wide range of variables.
Do not be discouraged by this and other facts about losing traders — plenty of people who entered the game with small funds and made a few thousand dollars have done so. Chinese trader Chen Linkuy, who started out with just $100, made $100,000 in a matter of weeks.
This story has a wide range of facets. Linkuy was clearly using a lot of leverage, and his trading was not in accordance with the money management rules of forex trading as a result of his risky strategies. However, he’s not the only one who’s done well.
Forex fortune stories that aren’t made public, but you can find a lot of people who made $1,000 to $10,000 with small initial investments. High earners like Linkuy, on the other hand, tend to keep their wealth under wraps because they don’t want to risk being audited or revealing their strategies to the public.
Are There Any Requirements for Forex Profitability?
Profits in the foreign exchange market are rarely expressed in dollars, but rather as a percentage of a trader’s initial deposit. Each trader’s success is evaluated on a subjective basis, which is reflected in the profit percentages. For a novice trader with a small deposit, a 1% profit per day isn’t a lot of money, but for leading traders from the world’s largest banks, it can be millions or billions of dollars.
The number of lots you trade each day, as well as your leverage, have an impact on your profits. As leverage increases, so does the risk of the investment because your profit and the amount of leverage decrease or increase in tandem.
On a $10 investment, a high-risk, high-leverage strategy might net you $3 to $15 per day, but that’s a success rate few traders can hope for.
As a result, a trader’s profits will be influenced by their deposit and leverage. As a result, your ability to predict the short-term world economic situation will be critical to your market predictions going forward. An investment strategy that requires a large amount of money isn’t enough on its own.
How Leverage Affects Your Profits in the Forex Market.
In the foreign exchange market, leverage can reach 100:1. If you have $1,000 in your account, this means that you can make $100,000 worth of trades for every $1,000 you actually have. Traders who want to increase their market exposure beyond the amount of their initial deposit can benefit greatly from this financial instrument.
However, if you’re not aware of all of the associated risks, leverage is useless. In other words, leverage magnifies both the gains and the losses of trading, so it’s fantastic when you’re making money and crippling when you’re losing it. There are more risks when you use more leverage on your capital.
Example of a Losing Leveraged Foreign Exchange Trade
We’ll use an example to demonstrate the dangers of leverage in forex trading. Suppose a trader had $10,000 to work with, and they were working with a broker that requires a 1% margin deposit. They take a look at their current options and conclude that the USD/EUR is nearing its peak and is likely to fall in the near term. Consequently, they decide to sell USD/EUR at 1.20.
This is where the power of leverage is at work. Shorting USD/EUR by $500,000 instead of $10,000 would require a trader to apply 50 times their real leverage in this case.
In that case, what will happen if the currency pair rises to 1.21 instead of falling? 41.5 percent of the trader’s entire deposit would be wiped out by $4,150 in losses.
An example of a profitable leveraged Forex trade.
If you use leverage correctly, it can significantly increase the amount of money you have available for a single trade. Suppose there is a massive shift in the USD/EUR rate from 120 to 110.
Shorting the USD/EUR by $5,000 at 1.20 and then covering their short position when the index reaches 1.10 would result in an 8.33 percent profit, or around $500. Although applying 50:1 leverage would yield a massive 416.67 percent return, they’d end up with $25,000 in profit.