Is there money in forex trading?

A guide to success

Making money in the Forex market is similar to making money in any business venture. To succeed you need a business plan that incorporates a strategy that will allow you to generate more profits than losses while maintaining robust risk management.

Like any new business, trading the capital markets requires a plan that may help you consistently make money. Many people have difficulty trading because they believe it is easy and does not require a business plan or strategy. You would never try to open a supermarket without determining the type of customers that would shop at your store or the type of merchandise people in the area want to purchase.

To successfully trade the Forex markets, you need to determine your risk parameters. This includes your risk management profile and what type of returns you are looking to experience. Realistic goals are very important, and knowing how leverage works in the Forex markets is also a key point to understand.

The first step is to determine how much money you are willing to risk on your new business venture. If you are willing to risk 1,000 for example, you should strive to generate a return which is 1.5 to 2 times that amount (1,500 to 2,000). The amount you plan on risking should only be a portion of your disposable income and should not be money you need for food or shelter.

Each trade that you transact should have a similar risk profile. So if you plan on risking 10% or 100 dollars on each trade, then your goal per trade should be similar to your overall risk profile where you earn 150 or 200 dollars per trade. You might generate a trading strategy where you earn less on each trade than you risk, but you would only want this type of strategy if you plan on winning more than you lose in aggregate.

If you win 200 dollar for every 100 dollar you risk, then you only need to win slightly more than 1/3 of the time to have a winning strategy. For example, say you had 9 trades, and you win 200 per trade and lose 100 per trade. If you win on 3 trades you earn 600 and that is offset by losing on 6 trades at 100 each. This is your breakeven and allows you to determine what kind of strategy you might want to implement.

Once you have determined the risk/reward ratio you will aim for, the next step is to find a strategy that fits your personality, and conforms to your risk management. If you like trying to catch a trend, then creating a trend following strategy is right for you. Trends only occur 30% of the time, so you need to win bigger than you lose for this trading strategy to be successful. If instead you like to find value, then looking at strategies that find overbought or oversold securities may be more up your alley. The key is to create a strategy that allows you to make money consistently, without going beyond your risk parameters. This may allow you to grow your business in a prudent and consistent manner.

Discover forex trading with easyMarkets  and speak with them about helping you develop your trading plan.

Risk warning: Forward Rate Agreements, Options and CFDs (OTC Trading) are leveraged products that carry a substantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you understand fully the risks involved and do not invest money you cannot afford to lose. Our group of companies through its subsidiaries is licensed by the Cyprus Securities & Exchange Commission (Easy Forex Trading Ltd- CySEC, License Number 079/07), which has been passported in the European Union through the MiFID Directive and in Australia by ASIC (Easy Markets Pty Ltd -AFS license No. 246566).


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