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Can You Actually Make Money Trading Forex?

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Forex trading is, how they say, “having a moment.” The number of retail traders participating in the forex market recently reached an all-time high, with well over a million participants.

What makes the forex market so intriguing lately? For one, the incredible volatility that has resulted from the pandemic, inflation, interest rate interventions, and the war in Ukraine have led to unprecedented profit possibilities. And two, forex brokers are constantly improving trading apps and platforms that make it incredibly easy to participate in the market. 

Does that mean you can make money trading forex? Yes, but it’s not as easy as some seem to think. Making money in the forex market requires a lot of time and effort. Some traders have more or less lucked into some enormous profits in these choppy markets, but there’s an equal number of traders who have suffered substantial losses. Learn the market so you can be on the right side of the ledger.

Trading forex will not make you rich overnight (although it’s a truly global market, so you can trade all night long). If you want to make money trading forex, you have to learn the market inside and out and follow these steps: 

Develop a strategy

I’m amazed at the number of traders who leap into the forex market without having a game plan. Yes, in times of heavy volatility you can luck into some winning trades, but luck will only take you so far.

Consistently profitable forex traders are those who rigorously employ a trading strategy. One of the toughest parts of trading is keeping an even keel and preventing yourself from making emotional decisions. This is difficult to do when there’s real money on the line, but a clearly defined strategy helps you keep your cool and make intelligent decisions,

I wish I could just give you a tried-and-true strategy to start with immediately, but that’s not how it works. You have to find the strategy that best suits your temperament, risk tolerance, and trading abilities. Almost all forex strategies involve technical analysis, so start there. Then you can decide if you’d like to be a swing trader, scalper, news trader, carry trader, or anything else.

An important part of your trading strategy is how you plan to use leverage. Leverage allows you significantly more buying power than you would have with just the actual money in your account. Leverage magnifies gains but also magnifies losses. Many a new trader has been completely wiped out by taking on too much leverage. Understand it and know exactly how you plan to use it.

Choose a great forex broker

You can’t participate in the forex market without a forex broker. On the surface it might seem like all forex brokers are the same, but choosing the best forex broker for you is an important step in becoming a profitable trader. 

It starts with choosing a secure, regulated broker that is licensed where you live. From there you should consider a number of factors before you make your decision. 

You obviously want a forex broker that trades the currency pairs you’re interested in. All forex brokers trade the major pairs, but if your strategy involves looking for opportunities against the more obscure (known as “exotic”) pairs, make sure your broker offers a wide variety. If you want to trade other assets beyond forex, find a broker that offers other financial instruments as well.

Another critical factor is the broker’s trading platform. Whether you’ll be trading on your computer, tablet, or cell phone, you want a platform that is simple to use but also offers all the charting and market analysis options you need to execute your strategy. 

Beyond that, you want a broker that is fast, cheap, and has a good customer-service department, with bonus points for their educational resources if you’re a new trader.

Before you make a deposit with a broker, try the free demo-trading mode for at least a week. It is incredibly important to get comfortable with your broker before you start putting up real money.

Learn to accept and limit losses

If you want to be a profitable forex trader over the long term, you have to be willing to accept losses. They’re a part of the game. The secret is to learn how to limit these losses and how to bounce back when they occur. 

The simplest means to curtail your losses is to use a stop-loss order with every trade. Stop-loss orders do exactly what the name implies. As you enter your trade, you add a stop-loss level. Should your currency pair hit that mark, your broker will automatically sell. 

That way you know how much you stand to lose should the market go against you. I should note that stop losses aren’t completely infallible—at times of extreme volatility, the market might move faster than your broker can pull the trigger—but you can be certain your losses will be contained.

It’s also extremely important to bounce back after a trading loss. A good trader has to put the frustrations of a losing trade aside or they will miss opportunities to get back on top. 

Use take-profit orders

It might seem counterintuitive to use take-profit orders since they can limit your profits by cashing you out at a level you predetermine, but they can be essential to your long-term trading success. 

Experienced traders will tell you how frustrating it is when you don’t close out a winning trade in time and end up giving a big chunk of your earnings back to the market. This frequently happens to new forex traders because it’s natural to want to hang on to a winner. Watching your net equity grow is a thrill! 

But markets always change course at some point, and if you’re too enamored with your trade, you won’t cash out in time. A take-profit order eliminates the emotional element and ensures that you get out with a profit. 

Conclusion

Trading forex isn’t a way to get rich quick. Don’t get into the forex market unless you are committed to learning the basics of charting and technical analysis, as well as what drives the market and how to execute your chosen strategy. 

Once you’ve done that, you have a real chance of actually making money trading forex.