Can You Make Money Trading Forex?
Many aspiring traders wonder whether it is possible to live comfortably by trading forex. The short answer to that question is yes. It is possible to make a living trading forex, but it is a consistent learning process with lots of trial and error. Trading forex for a living is a challenge and risky. Many successful Forex traders out there trade for a living, but they have developed gradually over time and increased their account to a level that can create a sustainable income. Investing in forex is a viable career choice for some simply because the benefits of becoming your own boss and working at convenient times are highly attractive prospects for many people! The most important part of making a living with forex is finding a source for multiple streams of income. Apart from currency trading, traders can make money by investing in financial instruments like ETFs, Futures, and Options.
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Many experienced traders suggest that new traders take things slowly and focus on acquiring trading skills first. This way, they would be saving themselves from precarious financial situations even if the payouts are small. The internet is a treasure trove of forex-related books, articles, webinars, trading courses that offer a free online training session, youtube videos, and blogs to learn from.
If your plan is to trade forex for a living and let your account compound until you would gain independence, it might be a bad idea. A better game plan would be to dedicate the majority of your spare time to forex while still working a day job. As you learn, you can combine, say, 90% work and 10% trading (the numbers can be different for various people). In forex, the majority of funds on the account stay there. So, this means that the initial stages don’t usually allow Forex traders to support themselves financially. They are undercapitalized for making a living in Forex Trading. Smaller deposits and position sizes are almost never sufficient as an income. That’s why it is usually a good idea to maintain the existing job and gradually switch from it to forex.
How Much Trading Capital Should You Start With as a Forex Trader?
Trading Forex for a considerable payout requires a large account to begin with. If you want $2,000 a month from trading, you’d have to open up an account of around $200,000-$500,000. That’s because traders can withdraw about 1%-3% from their accounts to actually spend it. Making a living out of forex is greatly affected by how much capital you have at your disposal. You can even start with a $100 account. Starting with an account under $1000 might not allow you to leave your full-time job immediately, but gradually, you’ll see your capital pool grow, and you could eventually start trading for a living. Now when it comes to your capital, you need to be smart. Do not put all the capital you have into your trading account.
Many people start day trading part-time and use their profits as a supplementary income since this requires a lower initial investment. After you’ve got the hang of trading, you can invest a larger amount to earn better profits and eventually a full-time income.
You should calculate how much money you can afford to risk to decide how much capital you can start with to make money trading forex.
In general, a successful forex day trading strategy will take into account different indicators, including risk-reward ratio and win rate. The risk-reward ratio in forex takes into consideration the investment which needs to be risked. If you manage to have a win rate of 50%, losing 10 pips on unsuccessful trades while gaining 15 pips on winning trades, then you can easily trade forex for a living.
The best forex traders aim for a high win percentage, as this provides greater reward-risk flexibility. It is advisable to always keep the risk levels as low as possible, with many traders aiming for an investment risk of 1%.
How Much Money Can I Make Trading Forex?
Forex isn’t a quick rich scheme. If the goal of a day trader is to make a living off of trading one contract 10 times per day while averaging a one-tick profit may not provide a sufficient income.
For instance, a trader who holds $5,000 with a win rate of 55% could place a stop-loss order 5 pips away from their entry order, with a target of 8 pips away. This would provide the trader with a reward of 1.6 points greater than the risk. With a decent reward risk ratio, a dedicated forex day trader can make between 5% and 15% per month thanks to leverage. In the U.S., forex brokers provide leverage up to 50:1 on major currency pairs but keep in mind that excessive leverage can ruin an otherwise profitable strategy.
Let’s say you had a coin to flip. You would earn $2 every time you got heads, and you would lose $1 for tails. Like most people, you’d want to flip the coin over and over. When you have a 50/50 chance between making $2 or losing $1, it’s a no-brainer opportunity that you’d accept.
Now let’s change the scenario. If you get heads, you will triple your net worth; but if you get tails, you will lose every possession you own. Would you flip that coin now? Most probably not because one bad flip of the coin would ruin your life. Even though you have the exact same percentage advantage in this example as the example above, no one in their right mind would flip this coin. This is how leverage can cause a winning strategy to lose money.
Here’s another example: If a trader with a $5000 account and 55% win rate risks $50 on each trade, with a pip movement worth $10 and a 6-pip stop, the winning trade would be worth $80. This means that if you execute 100 trades a month, you’d have a total income of $4,400. But let’s say you had 45 unsuccessful trades, with $50 lost on each, totaling $2,250. Assuming there are no commissions to pay to a forex broker, you could still manage to make a gross profit of $2,150 per month.
Create Your Trading Routine
Some rough estimates suggest that 95% of people who begin trading for a living fail and lose money because they didn’t have a good idea of what they were getting into, to begin with. This is why a trading routine is an absolute must. Don’t worry. Creating a trading routine is easy – you just need to remain motivated and committed over time. All traders require a high-speed internet connection and a professional software platform. It is recommended to invest in a powerful desktop computer with multiple monitors so that you can view multiple charts and technical indicators. If you want to start trading for a living, the most important thing is to develop your own trading routine, one which fits your trading style and daily life.
Here’s what you can do in your trading routine:
1. Formulate a Neat Trading Plan of Action
Always remember to create a trading plan before taking part in active trading in the forex exchange to prevent the loss of much money. The plan consists of rules that set out the criteria for entering into the trade, exiting the trade, managing the finances, and supervising other trading aspects. The forex trading technologies of today make it possible for the traders to analyze the practicability of a trading strategy before implementing it in the market.
Before placing trades with real money, day traders may try out the backtesting technology for assessing the trading plan. The practice of backtesting allows the trader to apply the forex trading approach to historical trading data for checking the viability of the plan.
2. Make forex trading your sole business
Traders often make the mistake of trading in forex as a part-time job or a fun hobby. Such an approach to forex trading makes traders feel less committed to learning from the market and developing trading strategies. Treat it like a business. Make it your primary focus. Take note of all the expenses incurred, losses, uncertainty, risks, taxes, and stress in your day trading journal. Look at yourself as a small business owner and conduct extensive research to boost your business perspective.
3. Employ the latest forex trading technologies
Leverage forex trading is highly competitive. It is imperative to use the latest forex trading technologies to stay ahead of other forex traders in the industry. There are several authentic charting platforms online that provide forex traders with a wide range of ways for viewing and analyzing the forex market trends. Register with these trading systems to monitor and conduct trades from your computer or smartphone.
4. Focus on the preservation of the trading capital
The only way to protect the trading capital is to avoid taking unnecessary leverage risks while trading in the currency markets. It is to be noted that the preservation of much capital does not mean the non-incurrence of losses. Instead, the protection of much money is synonymous with appropriate leverage risk management. Avoid taking unnecessary risks while trading and be constantly alert of the market trends in order to preserve the capital and make a living trading forex.
5. Let the fx market educate you
Forex trading is a form of continuous education through full-time day trading for a living. One of the best ways to learn about the market is to conduct trading through a demo account. It is important to start trading and learn every day to understand the intricacies of the market. Forex experts recommend rigorous and extensive market research for the traders to understand the significance of different economic reports. The different factors that have an impact on market trends include world politics, economic events, political news, and even the weather. The market environment is very volatile and dynamic. Every trader needs to possess a clear idea of the past and prevalent market conditions to rake in big forex trading profits in the future.
6. Make sure that the losses are within your budget
It is essential to ensure that the money in the forex trading account is expendable before entering the forex exchange. Do not put your budget at risk for trading at the forex exchange. Do not invest in forex assets more than you can afford to lose. Conduct forex trading and investment with a portion of the profits. This method helps in keeping the losses within affordable limits.
7. Devise a fact-based methodology
A solid methodology takes time. Do not let hopes and emotions take control while devising the methodology. Instead, take every detailed fact into consideration for creating successful forex trading strategies. Do not hurry through the process of creating the methodology. Take your time to sift through the wealth of data available on the internet. Do thorough research of the forex market, the platform, the brokers, and every other aspect of leverage trading before investing the capital in forex assets.
8. Set the stop loss limits
If you are a beginner at the trade, then you may not be familiar with the term “stop loss.” It refers to a predetermined level of risk that the forex trader can manage to accept per trade. The forex trading platform can allow the trader to set the limit either in the form of a percentage or in the amount of money such as Dollar or Euro. Configuration of the level helps in protecting the trader by limiting his exposure to market risks during the trade.
9. Pick the right moment to exit the trades
Do you know the right time to stop the trades even if you are making money? Generally, there are two reasons behind stopping the trade. One of them is an ineffective strategy, and the other reason is the ineffectiveness of the trader. An ineffective plan of trading manifests in the form of huge losses that are estimated to be even more than predictions based on historical data. However, keep in mind that such a loss is normal in case of erratic volatility of the currency markets. Re-draw the plan and venture into the market again to make profits.
10. Focus on the trading moves
Keep your full time trading goals in mind while making your moves at the market. Do not be afraid of losses as incurring a loss is only a part of the leverage trading. Make the best of the winning trades instead and take note of the cumulative profits. Accept wins and losses with equal enthusiasm to remain as calm and unemotional as you can during the trade. You also need to make sure that your objectives are realistic and achievable. Try to focus on earning decent returns within a reasonable period. Do not nurture hopes of becoming a millionaire overnight. Instead, practice your moves, develop strategies, and make good money every month from the fx market.
To be able to build a career as a full-time Forex trader, there are many things you’ll have to do right over the long-term. Successful traders tend to take smaller steps and gain knowledge along the way; combine existing jobs with trading, and start with smaller deposits and slowly increase them to finally get enough payouts for regular expenses. Even part time traders need to adopt efficient risk management techniques, sharpen their trading skills, and stick to low leverage day trading on a full time basis to stay safe. In any case, the odds of you building a successful trading career are good if you have realistic goals set in place and a sound trading strategy with a positive expectancy. Entering trades is like a battle – if you want to win it, you need to be ready and prepare for it. In the words of Sun Tzu, every battle is won or lost before it is ever fought.
Markets are unpredictable, and you can’t predict every possible scenario, but what you can control is yourself. And finally, taking things slow, increasing the trading size step by step, tends to be a sustainable strategy towards a successful Forex trading career.