Making Profits through Forex Trading
If you’re wondering how to make money on the forex market, then you’re in the right place. We’d be doing you a disservice, however, if we didn’t tell you straight-up that trading forex is not a get-rich-quick scheme.
Although forex trading can be immensely profitable, it isn’t as quick or easy a process as some people think. Becoming a successful forex trader takes time and effort. You have to do your research, you need to plan and prepare your trades, and you must develop certain skills and traits.
If this sounds difficult, then fear not as we’re here to help. On this page, you can learn everything you need to know about making a profit as a forex trader. We’ll cover important concepts that will help you, such as:
- The real secret to becoming a successful forex trader
- How to prepare for trading to minimize risk
- The behaviors you need to develop to trade profitably
- The tools that can help you take your trading to the next level
How much money can I make from trading forex?
Prospective forex traders almost always ask us the same question. They want to know how much they can expect to earn when trading forex, and how they can reach this figure as fast as possible.
Profitable forex trading is not a myth nor is it a scam. Whilst the idea of getting rich from the comfort of your own home may sound too good to be true, it is possible and many retail traders make a significant amount of money.
However, forex trading is not something you can just jump into and make a profit overnight. You need to treat forex trading like any other career and dedicate the time and effort necessary. Do this and your odds of making a profit increase exponentially.
The amount of money you can make also depends on many other factors, including how much capital you’re willing to risk, your risk appetite, your trading plan, and your risk management strategies.
What do I need to become a profitable Forex trader?
Learning how to make money on forex is actually relatively simple, but that doesn’t mean it’s easy. It all starts with setting up a trading plan that you follow no matter what.
A trading plan consists of two things, a trading routine, and a trading strategy.
Each is as important as the other, as both of these things help you to reduce the risks of emotional trading. If you wish to become a successful forex trader, then you need to ensure that your trades are always well-thought-out. This means that emotions have no place in the market.
Instead, your trading plan should be created to suit your personality, trading knowledge, and trading style. In the sections below, you can find out more about what needs to be considered in both parts of your trading plan.
Creating your perfect trading routine
Profitable forex trading requires a routine, which means deciding when and how you’re going to trade, setting realistic targets, financial goals, and more.
Decide how you will trade forex
You first have to decide what type of trader you are. Will you be engaging in day trading forex? Do you think swing trading is more your style? Are you a scalper?
Day trading means opening one trade per day and closing it when the day is over. Swing trading is a longer-term approach where you hold on to a trade for a few days at a time. Scalping involves multiple trades throughout the day that you only keep open for a few minutes at most.
Your preferred approach will determine the timeframe you will trade. For example, as a scalper, you will trade on shorter timeframes, like the 1-minute and 5-minute charts, and only use longer timeframes for confirmation of trends.
Conversely, as a swing trader, the small moves a currency makes on a 1-minute chart will only really be noise that could confuse you, so you will stick to longer timeframes, like 1-hour, 4-hour, or even daily charts.
You also need to decide how you will approach forex trading. Will you rely on technical analysis alone? Do you prefer fundamentals? Or will you combine both?
- Fundamental analysis involves studying any factor that can have an impact on a currency’s value, including economic, social, and political factors.
- Technical analysis attempts to predict how the price will move by studying past market data. It focuses on statistical trends, such as trading volume and price movements.
If you prefer to trade the fundamentals, one profitable forex trading approach is to trade the news. This means trading around economic data releases.
Conversely, you might prefer technical analysis and choose to not place as much importance on fundamentals. In this case, you probably want to avoid trading around economic news releases because of the increased volatility of the market.
Choose a Trading Time
Whether you make money forex trading or not will also depend on when you trade. You can trade forex round the clock, from Monday to Friday, because the market operates in different time zones.
The four major foreign exchange markets are Sydney, Tokyo, London, and New York:
- Sydney is open between 5 PM and 2 AM EST
- Tokyo is open between 8 PM and 4 AM EST
- London is open between 3 AM and 12 PM EST
- New York is open between 8 AM and 5 PM EST
When one major market closes another opens, except for some overlap between Sydney and Tokyo, and London and New York. During these overlaps, the market tends to be more volatile because more traders are active. Volatility means more price movements and a greater opportunity for profitable forex trading. You might prefer to play it safe and avoid these overlapping hours.
Another factor to consider is that even though you can trade any currency, at any time, when the domestic market of that currency is closed you might want to avoid trading it. This is because you can never be certain what factors will affect the currency while its domestic market is closed, and you might experience an unpleasant surprise when it opens.
Price movements also tend to be somewhat smaller whilst markets are closed. If you’re trading the GBP/JPY, for example, you’ll often find that price movement slows to a crawl when the London and Tokyo markets are closed.
When you trade will depend on your approach to trading (technical or fundamental) and which currency pairs you’re interested in trading. Regardless of these facts, once you set a schedule remember to stick to it. If you spend too much time trading, you run the risk of getting tired and could end up making bad decisions.
Set realistic targets
Setting realistic targets is crucial in order to make money on forex, as is risk management.
If you set a target of hundreds of pips per day, you are going to be disappointed. Some currency pairs don’t even move hundreds of pips in a day and market activity can change with any given week.
As a beginner trader, you should aim for a profit goal of around 5% per month. This is much more accurate, and it ensures that you don’t end up losing more money than you make, which can be the case if you continue trading to reach an unrealistic target.
At the start of your trading career, you should also never risk more than 1% of your account per trade, and you should set a stop-loss order accordingly. A stop-loss order tells the broker that you want to sell when the price of a trade reaches a certain parameter. As such, it limits the possibility of your account being wiped out if a trade suddenly moves against you.
It’s important to note that profitable forex trading is as much about making money as it is about minimizing losses. You will lose some trades, It’s inevitable, yet a good risk management system in place your losses won’t have such a major impact on your account and overall results.
Monthly financial goals
Trading is a lot like life, with ups and downs and some months being better than others. Many traders will tell you, therefore, that it’s important to set monthly financial goals to manage your performance.
However, financial goals can actually be damaging to beginner traders. This is because they add a level of pressure and it’s then easy to start taking risks to make up for losses. Instead, you should initially simply focus on finishing the month with more winning trades than losing ones.
As you gain more experience trading, you can set financial targets, yet you shouldn’t let this preoccupy you at first.
Watch the economic calendar
When you first start attempting to make money as a forex trader, it’s important to know what will move a market. You may have decided to be a trader who focusses on technical analysis, yet you still need to pay attention to economic news.
You should always look at the economic calendar over the weekend for the week ahead in order to see what the most important events are, and what currencies will be affected. If you don’t want to be involved in highly volatile markets, then just ignore trading those currencies.
For example, if an important US dollar-driven event is about to come next week, the wisest thing to do is to avoid US dollar pairs and simple trade crosses.
Be patient and unemotional
It is said that patience is a virtue, and this cannot be truer than when trading financial markets. Traders tend to forget that we’re all subject to the same fears when it comes to trading: fear of being wrong, of losing the account, of receiving a margin call, of overtrading, of missing an opportunity, and so on.
In the end, emotions have the way to make a profit in Forex trading is to know yourself, your strengths and weaknesses, and to learn to be patient. You won’t become a highly lucrative trader overnight, and that’s ok.
Developing a trading strategy
Now you’ve developed a trading routine and got to grips with the characteristics of a good trader, the next step is to develop a trading strategy. This is crucial, as it allows you to put your routine into practice.
Successful trading strategies are based around two different figures, your win rate and your risk to reward ratio.
A win rate is simply the number of times you make a winning trade, in comparison to a losing one. So, for instance, you would have a 70% win rate if you won 70 out of 00 trades and lost the rest. It seems obvious then, that if your win rate is higher than your loss rate, you will become a profitable trader. However, this isn’t the only factor you need to consider.
Your risk to reward ratio signifies how much you are willing to risk and for what reward. For example, are you willing to risk your whole account to make money forex trading faster? Or are you a more conservative trader and would rather risk less for a smaller but safer reward?
For example, if you have a higher appetite for risk, you might set your stop loss at 30 pips. This gives the market more room to move so you have a better chance of making a higher profit but also means you are risking a loss of 30 pips if the market moves against you.
Conversely, if you are more conservative, you might set your stop loss at 10 pips. This means a lower risk since you’ll only be losing 10 pips, but you’re also limiting your opportunity to profit because you’ll get stopped out of the market quicker.
Your win rate and your risk to reward ratio need to be balanced well to ensure you’re making profitable trades. It’s no good having a high win rate if you’re making high-risk trades, as this could mean that you sometimes lose far more than you gain in winning trades.
Should I use robots and other trading tools?
If you want to make money when forex trading, you also have the option of using various tools, such as trading robots, trading signals, and social or copy trading.
A trading robot is a piece of software that you attach to your trading platform that opens and closes trades automatically, using a pre-defined strategy. These robots are sometimes referred to as Expert Advisors (EA) because that’s the name used by the most popular trading platform on the market, MetaTrader 4.
You can make money forex trading using a robot because the software will execute the trading strategy exactly as it is laid out with no emotions involved. A robot can also trade in your absence, meaning more opportunities to make a profit.
Robots are generally advertised with a specified win rate, which has been verified by backtesting. Some robots don’t perform well in certain market conditions, however, which means you run the risk of incurring significant losses. Even though robots are considered to be a hands-off approach to forex trading, it’s a good idea to monitor the robot’s performance.
Cost is also a consideration since most good trading forex robots will require an investment. You should also always read expert robot reviews carefully and take note of user testimonials.
Forex signals can also be helpful for profitable forex trading. A forex signal is a recommendation sent out by an analyst, software, or robot that provides critical data on opening a trade. Essentially, you will receive an alert advising you to open a trade at a specific price and/or time.
Signals can help you make money forex trading because they make the process simpler. You don’t have to sit in front of a screen all the time, identifying trading opportunities. They also eliminate the emotional component.
Trading signals are also useful for beginners because you can also learn quite a bit by watching what signals you receive. If you analyze the charts, you’ll be able to learn how a good entry point is determined.
The problem is finding a service that offers good signals. Your best option is to speak to others who are subscribed to the same service. The other option is to use services provided by popular and trustworthy brokers.
Another disadvantage of trading signals is the cost. A free service isn’t going to offer you much since they tend to be provided by traders with minimal experience. On the other hand, a professional and successful trader isn’t going to be giving away signals for free.
Social trading, also known as copy trading, involves a system whereby your account automatically copies the trades of a specific trader you’ve chosen to follow.
The main advantage of social forex trading is that you can make money while you are still learning by following a more experienced trader. It’s also a great way to expand your trading knowledge as you can analyze the movements of successful traders.
One drawback of social trading is that your trading conditions might not be the same as the trader you are copying. This can affect your potential profits.
Start forex trading for profit now
Forex trading is only ever as profitable as you make it. In short, the more time you spend learning and preparing yourself, the more successful you will be.
Develop a solid trading plan that you stick to like glue and practice effective money management and there’s no reason for you not to be able to trade profitably.
Accurate and trustworthy tools can also help you to become a better trader. You’ll generally find that the best sources for these are reputable brokers that have a vested interest in your success.
Many high-quality brokers offer a variety of proprietary tools, strategies, and research resources designed to help you become the best trader possible.
Can you get rich by trading forex?
You can get rich by trading forex yet it will take time, effort and dedication. If you put in the hard work, it’s likely that you’ll soon see good results.
How much money can I make day trading?
Day trading offers plenty of opportunities for profit. The amount you make, though, will depend on how much capital you have, your appetite for risk, and your trading plan.
Who is the richest forex trader?
George Soros made $1 billion in a single day by shorting the pound sterling during the 1992 Black Wednesday crisis in the UK. He risked $10 billion, though.
How much money can you make from Forex?
The amount of money you can make from forex depends on a wide range of factors, including your skill, the size of your account, your appetite for risk and your discipline.
Is forex a good investment?
Yes, Forex can be a good investment so long as you are aware of the risks. You must also be fully committed to learning how to trade effectively.