Forex trading volumes are growing rapidly, with daily turnover surpassing $7.5 trillion and expected to reach $10 trillion this decade. The Forex market is a decentralized over-the-counter (OTC) market, known for its high liquidity and 24/5 operation. Its high leverage attracts many new traders daily, but how do they make money?
This review will guide new traders on how to approach the Forex market, clarify what Forex trading involves, present key facts, and explore strategies for beginners.
How Forex Traders Make Money
Before diving into strategies, beginners should understand some key facts. While these may seem discouraging, a well-informed trader is more likely to be successful. Instead of viewing these facts as negatives, use them to shape a profitable trading approach and avoid common pitfalls.
Forex Trading Facts:
The Forex market operates 24/5. Trading during specific periods can offer more profit potential, which will be covered later. You can trade at any time, but it may not always be profitable.
Between 70% and 90% of retail Forex traders lose money. Around 2% trade for a living successfully, and about 10% earn enough to justify their investment of time, money, and effort.
Over 80% of daily Forex trading volume is algorithmic. Retail traders often compete against algorithms powered by machine learning and AI, which can execute trades and secure profits faster than human traders.
Many retail traders fail to view Forex trading as a skilled profession requiring extensive education and experience. Instead, they approach it casually or like gambling, often leading to losses. It’s crucial to invest time in high-quality education before opening a trading account.
Risk management and understanding leverage are crucial. While leverage can amplify both profits and losses, it’s the lack of risk management that leads to significant losses. A 2% loss is the same regardless of leverage; it simply means that fewer pips are needed to reach the drawdown limit with higher leverage.
What is Forex Trading?
Forex trading, or foreign exchange trading, involves buying and selling currencies to profit from changes in their exchange rates. Here’s a brief overview:
Currency Pairs: Forex trading is conducted through currency pairs, such as EUR/USD, where the first currency is the base currency and the second is the quote currency. Traders buy or sell these pairs based on their expectations of how the exchange rate will move.
Market Structure: The Forex market is decentralized and operates 24 hours a day, five days a week. It is the largest and most liquid financial market globally.
Leverage: Forex trading often involves using leverage, which allows traders to control a larger position with a smaller amount of capital. This can amplify both profits and losses.
Participants: The market includes various participants such as banks, financial institutions, corporations, and individual traders.
Objective: Traders aim to profit from fluctuations in currency prices by buying low and selling high (or selling high and buying low).
Tools and Platforms: Forex trading is conducted through online platforms and brokers, where traders use various tools and strategies to analyze the market and execute trades.
Is Forex trading easy?
No, Forex trading is simple but not easy. It is a highly skilled profession, and traders must respect and approach it as such to succeed.
Can Forex traders earn money?
Yes, Forex traders can earn money if they deploy the appropriate resources and approach.