Is Forex Trading Profitable? - DailyForex.com

Is Forex Trading Profitable? - DailyForex.com
GBP/USD Forex Market Climbs as Others Remain Poised - Securities.io
is Forex Trading Worth it ? - FXDailyReport.com

Posted: 30 Apr 2020 06:23 AM PDT

We have all heard statistics quoted such as 95%, 90%, or 80% of people who open an account with a Forex / CFD brokerage blow their account within six months. Some people tend to believe this out of respect for the Pareto principle, which says that 80% of profit is made by only 20% of cases. Is there any way to know for sure whether any of these estimations might be true? Yes, thanks to new ESMA regulations in the European Union, which oblige Forex / CFD brokers to disclose prominently on their websites what their average retail investor's percentage loss or gain. So, let's take a look at the current statistics published by some of the biggest Forex / CFD brokers in the world (in terms of trading volume) at the time of writing:

A few important conclusions can be drawn from this self-reported data:

All the largest retail Forex / CFD brokerages report very similar data, so it is reasonable to assume approximately 70% of all retail CFD traders lose money.
The percentage of losers is very similar between brokers, suggesting it is the market and the traders themselves, not the brokers, who are responsible for their clients' long-term losses.
Although this data includes clients trading non-Forex products, there is no reason to believe results differ between clients trading Forex and non-Forex CFDs.
Even retail Forex traders seem to be more profitable than is widely believed, as traditional estimations of 80% to 90% as losers appears to be an over-estimation.

Why do 70% of Retail Forex Traders Lose Money?

Now that we have established that for about 70% of people who try it, Forex trading is not profitable, we should ask why. After all, if markets are random as the classic "efficient markets" hypothesis suggests, then shouldn't winners and losers be divided at roughly 50 – 50?

An even division between winners and losers might make sense if Forex were a zero-sum game, as there has to be a loser for every winner, and vice-versa. Yet retail Forex / CFD trading is not a zero-sum game, it is a negative-sum game, because the retail Forex trader:

Must pay either a spread, a commission, or both in order to enter and exit a trade.
Must usually pay an overnight fee on any open trades which are held over 5pm New York time.

This means that the odds are stacked against the retail Forex / CFD trader. However, it is not impossible to overcome these odds, as the 30% of profitable retail traders can testify.

Some years ago, one large retail Forex brokerage released data which showed two clear differences between profitable and losing traders. Traders who:

Made higher deposits into their accounts, and
Used lower true leverage

were more likely to be profitable. We'll examine each of these factors in turn, although they are related, because traders with lower deposits tend to use higher leverage.

Why are Better Capitalized Forex Traders More Successful?

Retail Forex traders who make larger deposits may be more likely to take their trading seriously, because they have more money at stake, and know instinctively that their chance of making a meaningful profit is greater too. For example, a trader who deposits $100 and makes a return of $20 should be just as proud of themselves as a trader who deposits $10,000 and makes a return of $2,000 as it is the same trading achievement – a 20% return. Yet very few people anywhere in the world will be able to get very excited over making $20. So, to some extent, this might be just a question of focus and meaning.

Why are Forex Traders with Lower Leverage More Successful?

A characteristic of retail Forex trading is the relatively high leverage offered by many Forex / CFD brokers, especially those located outside the European Union (Australia allows leverage on Forex as high as 500 to 1). Many brokers also allow accounts to be opened with deposits even lower than $100. This means that a lot of retail Forex traders might deposit $50 and use 400 to 1 leverage to make one trade sized at $20,000. This trader will then either wipe out their account or maybe triple it, which would then probably lead to another over-leveraged trade with a similar result. While there is some logic at work here – a series of winning, highly leveraged traders would a way to make a huge return quickly in theory – the odds against such a gamble resulting in anything except a blown account after a few trades are vanishingly small.

It is also worth remembering that lower leverage makes it easier to control and limit risk, which is a key factor in long-term profitability. This risk issue is best illustrated by the fact that once a trader is down by more than 20% from peak equity, it begins to become exponentially more difficult to recoup the loss. A loss of 20% requires a profit of 25% to be regained; a loss of 50%, a profit of 100%.

How Can I be a Profitable Forex Trader?

Use Very Low or No Leverage

Now we've looked at the evidence, the odds are looking better for you. 30% of retail Forex traders are profitable, and that number would surely be considerably higher if it did not include all the traders using overly high leverage. So, the first thing you can do is only use very low leverage or even no leverage. In practice, this means not risking more than 0.5% (ideally 0.25%) of your account on a single trade. Don't try to be greedy, in Forex trading, it is counterproductive.

Make a Meaningful Deposit

If you can only afford to deposit $100 that is OK, but you have to respect that $100 without getting greedy. If the $100 does not mean much to you, you almost certainly won't be motivated enough to trade it well.

Use a Realistic Trading Strategy

You can't expect to just start putting on trades and making money. You need to wait for opportunities where you think the market is putting the odds in favor of either long or short trades, and then take the trades according to your plan. If you do not have a strategy to identify those opportunities, then you will be groping in the dark.

It has been quite well established that markets are not efficient, and that trend-following strategies, if executed carefully, are profitable over the long-run in liquid markets, and that includes major Forex currency pairs such as EUR/USD and USD/JPY. One of the strategies which has worked best in Forex markets over recent decades is to trade breakouts to new 50-day highs or lows on these two major currency pairs, using relatively tight stop losses and some kind of trailing take profit. Pullback trading strategies can also be used to trade Forex currency pairs profitably while they are in strong trends.

Most of the time, Forex pairs range: if the price goes up one day, it is most likely to go down the next day. It is difficult to profit from this, but when it seems obvious that a Forex pair's price is going nowhere, you might try to trade the bounces from the limits of the range on short time frames, using tight stops to increase the reward to risk on winning trades.

Trading strategies which rely upon fundamental analysis are arguably less successful in Forex, but fundamental analysis can be used to effectively filter trade entry signals generated by technical trading strategies.

Follow Your Trading Strategy and Be Consistent

Having a good, profitable trading strategy won't help you use any money unless you execute it correctly. It is important not to get depressed or frustrated by losing trades – remember, it is all part of the plan to have some losing trades, and it is not a big problem as long as you are keeping individual trade sizes small. You should expect losing streaks, which you will more than make up for during the winning streaks. Yet, you must be consistent as if you stop taking trades, you will probably miss winners which would have made the difference.

It is important to control your emotions – most traders get emotional, but profitable traders find a way to stop their emotions from ruining trade execution.

How Much Money Can You Make Trading Forex?

In Forex trading, profits tend to come irregularly, so it is best to look at long-term performance as the most profitable performance possible. Results can vary and there is no guarantee of profit, but good Forex traders tend to outperform stock market benchmarks. I've looked at the best ways to turn $10,000 into $1 million trading Forex before.

Bottom Line

Although Forex trading is not profitable for most retail traders, you can put the odds of profitability in your favor by using very low or no leverage, keeping your maximum risk per trade low, and following an effective trading strategy without getting greedy or impatient.

FAQs

Can you get rich by trading Forex?

It is possible to get rich by trading Forex, but it is very difficult to do so unless you start with a large amount of money, as 70% of retail Forex traders lose money over the long-term. However, outperforming stock markets over the long-term is a realistic goal.

How much do Forex traders make a day?

A Forex trader may win or lose any amount of money in a single day without worrying about it as long as losses are not excessive. It is long-term performance which counts, as one day's trading is statistically irrelevant.

Is trading Forex a good idea?

Trading Forex can be a good idea if you are adequately capitalized and trust yourself to follow a good trading strategy over the long term while limiting risk, as it is accessible and can be a diversified investment.

GBP/USD Forex Market Climbs as Others Remain Poised - Securities.io

Posted: 30 Apr 2020 05:37 AM PDT

The term slippage is something you will often hear reference to if you are trading forex, or perhaps when you are researching with the intention of joining a new forex broker, or trying out a new trading platform.

Digging a little deeper to define what slippage actually is, and the explanation is quite simple. Slippage is the difference between the expected price of an asset when the trade was ordered, against the actual price that the trade was executed at.

Here we will examine a little more in depth as to how forex slippage occurs, and how you can best manage to avoid these situations.

When and Why Does Slippage Occur?

Any price change in your asset could hypothetically lead to slippage on the trade. The reality is though, that slippage is only likely to become an issue if the market is in one of two situations.

The first of these is when the market is not busy, so there are lower volumes being traded at that particular time. These volumes, no matter the reason they are present, can cause prices to change quite rapidly since there may not be sufficient support to maintain a certain price. These changes may not be very huge movements, but they can cause slippage.

The second major reason behind slippage in the forex and others, is market volatility. Within the forex market there may be periods of time where certain currency pairs or assets are subject to increased volatility. This could be due to certain important news, events on the economic calendar, or as part of wider economic conditions. This kind of volatility can again cause prices in to change very quickly which can result in slippage.

While there is no way to exactly know when slippage is going to occur, since it is often down to very small time windows where the prices change in less than a second, you can do your best to identify particularly common periods. Peak trading hours for the forex market are also likely to coincide with much higher volumes for example. The period of time around important economic announcements may also leave you open to slippage depending on how the market reacts.

Positive and Negative Slippage

Since slippage refers to any movement of the price between order and execution, then this can go in both ways. Slippage can be positive when the ask price of an asset decreases before the order is executed in a long trade.

Taking a look at an example, the bid/ask in the EUR/USD market may be 1.08/1.09. In this case, you will be expecting that your order is filled at the price of $1.09. If however, in the fractions of a second that it takes for the order to be executed, this price changes to $1.085, then you will have benefited from positive slippage since the ask price has dropped and the trade will have been executed at the better price.

Negative slippage is the exact opposite of this, and occurs where the price has risen slightly before order execution but the trade is then filled at the higher price meaning that you end up paying slightly more than you had first anticipated.

How common is Slippage in Forex?

Although slippage in forex is reducing more and more with the increase in order execution speeds, it still does occur. Almost all of the best forex broker choices you could make when you start trading try to negate the impact of slippage as much as possible. This can include adapting the methods they use to execute orders, or through special features that can manage to combat slippage.

Despite best efforts though, slippage is still something that you will have to take into account when you start trading forex. With that said, there are a number of ways that you can help protect yourself from slippage on your trades.

The Best Ways You Can Avoid Slippage

As a forex trader, one of the first things you can do to reduce the occurrences of slippage is to make sure you choose a forex broker that provides the fastest execution speeds possible. This should reduce the time between order and execution, where slippage can occur. There are also two other key ways that you can reduce your exposure to slippage.

Manage Your Order Types

Slippage most commonly occurs when entering a position with a market order. This leaves you subject to a small window of change in the market, with the trade still being executed at the different price due to the nature of the order.

The most effective way to combat this is to utilize limit orders. This will mean you are not exposed to the possibility of slippage, but your limit orders may not be filled right away. Here, you have to choose between getting into the position quickly with the potential for some slippage, or having the time to wait and fill your order at a particular price.

Another place where slippage occurs most is when exiting a position. The most effective way to manage this is to have a stop loss in place. You can still experience some slippage even with a stop loss, though it will leave you in a much better position if the market is volatile.

Be Careful When Trading Around Economic Events

The period of time around major news and economic events can be the most volatile time in the forex market. This is typically a time when many are moving around their position and trying to preempt the news that is to come, or reacting to an announcement that has just been made. This market volatility causes an increase in the occurrence of slippage.

Since these announcements, news, and data releases can result in much more market movement than usual, it is typically recommended that you avoid trading during these events. The outcomes can be unpredictable and moving in to, or out of a position during these times can be very difficult at your desired price.

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is Forex Trading Worth it ? - FXDailyReport.com

Posted: 11 Apr 2020 12:00 AM PDT

The forex market is the largest and most liquid market by far with a daily turnover of over 5 trillion US dollars. This makes it one of the most traded markets, attracting an ever-rising number of people who want to earn a sizeable income. One of the main reasons why more and more people opt for forex trading is because the barrier to entry to entry is relatively low.

However, forex trading is definitely not for everybody. Trading currencies is a high-risk, high reward endeavor. While you can earn a significant amount of money through the forex market, you can also have your trading accounts wiped off if you operate without tact.

This has led many traders to wonder if forex trading is really worth the risk. There is no definitive answer to this question since successful forex trading is dependent on a number of factors. Managing fast price movements and appropriate trade sizes, all while using borrowed funds to amp your bets can be incredibly tricky.

A single unfortunate trade may blow up your entire account. However, with a well-informed trading and forex risk management strategy, you can realize impressive profits. Herein is a comprehensive look at these factors to help you determine if trading currencies is for you.

The Benefits of Forex Trading

1. Unparalleled Liquidity

The most liquid market is the forex market. With trillions changing hands each day, you don't have to worry about liquidity when trading any of the major currencies including USD, EUR, GBP, CHF, CAD, and JPY.

Forex liquidity means minimal slippage when trading during normal market conditions. Discrepancies between the execution price and displayed price are rarely present.

3. Ability to Go Short or Long Anytime

Since you trade currencies in pairs, when you are bearish on one currency, you are bullish on the other – and vice versa. For instance, if you are bearish on GBP/USD, you go short by purchasing dollars and selling pounds.

If you are bullish, you can go long by selling US Dollars and buying Pounds. This is different from stock markets where you are only allowed to short-sell during an uptick. This is a great advantage for forex trading as you can profit from both upward and downward trends anytime.

3. High Leverage Choice

Forex trading offers the highest amount of leverage when compared to other markets. Mini trading accounts offer high-end leverage because of lower minimum deposit requirements and smaller lot sizes. High leverage allows you to maximize your profit potential, particularly on small price movements. However, the potential for loss is also large.

4. Decentralization

No single trading entity (no matter how big) controls market prices for extended periods due to the number of participants and the size of the forex market. As such, the playing is level (to an extent) and the market calibrates itself quickly.

In addition, there are no middlemen. A forex broker just facilitates your connection with another market participant. What this means is that the forex market is only subject to the global economy, and not a single organization or individual.

5. Lower Costs

Forex transactions are completed the OTC way, with traders directly dealing with market makers and other parties. As such, there are no exchanged fees and clearing fees with forex trading. Typically, market makers won't charge a commission on trades you execute through their platforms. Electronic Network Communication (ECNs) charge only a small commission above the bid-ask spread.

6. Global 24-hour Market

Forex trading operates throughout the world and is open 24 hours a day for five and a half days a week. This means that you can trade whenever you want to and not according to market dictations.

You won't have to wait for an opening bell or scramble to execute your order before a daily close. You can be as passive or active as you'd prefer and trade on your own schedule.

Forex Trading Risks and How to Mitigate Them

1. Market Risk

Market risk or systematic risk is the inherent risk to the forex market resulting from inflation, geopolitical factors, elections, and economic and financial announcements. It involves all factors that can affect the prices of trading currency pairs. While you can mitigate unsystematic risk with diversification, you cannot control systematic risk.

However, as a forex trader, market risk is the most useful type of risk. To make money from forex trading, you need the prices to move around (market volatility). This way you take advantage of price differences when selling and buying. You make winning trades due to market risk. On the other hand, it's a risk since if the markets are unfavorable, you may lose money.

2. Leverage Risk

Leverage is among the major benefits and risks of forex trading. You can use leverage to increase the returns on your investments significantly. However, it may also increase your losses since it mirrors the currency market movements.

Leverage works best with margin trading, where you utilize great market exposure while depositing a small portion of capital. Many novice traders don't understand how risky high leverage can get, and they tend to use the highest possible effects. You don't have to use a 200:1 leverage effect because your forex broker offers it.

Also Read: High Leverage Forex Brokers

3. Counterparty Risk

Counterparty risk is the risk involved with the party with which you open and close your forex trading positions; in other words, your broker. The major risk is that your broker fails to pay you, either due to poor regulatory enforcement (the scammers) or bankruptcy. As a trader, it can be difficult to measure this risk, so you rely on due diligence and regulatory bodies.

How to Choose a Forex Broker

Your forex broker can determine the success of your trading venture. When choosing a best forex broker, you should consider the following points:

Broker type – Market maker or ECN?
Security – How safe will your funds be with them? What certifications do they have?
Trial account – Does your broker offer a demo account?
Trading platform – How many different currency pairs are you allowed to trade? Is the order placing system satisfactory? Is order execution instant? Does it feature a charting interface?
Account and trade size – What is the minimum trading account amount? What is the minimum trade size?
Commissions and spreads – Are the spreads fixed or variable? Do they charge commissions on opening and closing positions?
Margin – what is the margin percentage? Lower margin requirements often mean more leverage offered.

It is worth noting that there are many other types of forex trading risk including liquidity, country, technology, transactional, interconnection, inflationary, policy and exchange rate risks.

All in all, Forex Trading is worth the risk and is a serious business. Just like with any other type of investment, there are benefits and risks involved. The good news is that it is definitely possible to make sizeable profits from trading currencies.

However, it requires hard work, due diligence, possible professional financial advice, commitment, and patience. Forex trading is not a gambling or a get rich quick scheme. You must take an informed approach, taking the time to study market trends and sentiments and applying techniques and tools to manage risks and your money.

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