Is forex trading profitable? Well, there is no easy answer to this question – not least because while some forex traders are able to make consistent profits, others are not so successful.
Therefore, the purpose of this beginner’s guide is to explore profitable forex trading strategies to ensure that currency traders enter this marketplace armed with the right mindset.
How Profitable is Forex Trading? Overview
Forex trading, like any other investment market, can be profitable. However, this is on the proviso that the trader has a firm understanding of how the forex market works and that they have a solid strategy in place. After all, the only way to make money in the forex industry is to consistently predict the future direction of a currency pair.
In other words, in order to be profitable, the trader will need to generate more winning trades than losing positions. This is no easy feat in the forex market, especially considering that many seasoned traders will rely on high-level technical analysis to make trading decisions. This means studying currency pairs with the view of predicting future trends.
A complete beginner will likely have no idea how technical and economic indicators work, as this research dividend can take many years to master. Take the above GBP/USD chart as a prime example. The chart highlights that the pair is trading at 1.1585 and each candlestick is based on a 1-minute price movement.
Seasoned traders will likely know simply by looking at the chart that GBP/USD has been stuck in a prolonged downward trend for some time now. The good news, however, is that by following a range of risk-management principles, alongside suitable trading strategies, it is still possible to be profitable in the forex space.
For example, newbies might consider focusing on the fundamental aspect of currency research – such as looking out for central bank interest rate movements and geopolitical events. Moreover, beginners might also consider utilizing a forex Copy Trading platform. This enables investors to mirror the forex positions of an experienced trader, like-for-like.
Learn More: Read our beginner’s guide on What is Forex Trading?
What are the Potential Profit Margins When Trading Forex?
So, is forex trading profitable and if so, how much can realistically be made? Crucially, there are many variables to take into account when assessing potential profit margins in the forex scene.
- First and foremost, the trader will need to assess their preferred forex pair, prediction, and stake.
- To keep things simple, let’s say that the trader decides to risk $1,000 on USD/CHF. The trader believes the price of USD/CHF will rise, so they place a buy order.
- When the trade is executed, the price of USD/CHF 0.8601
- After two hours of trading activity, USD/CHF is now priced at 0.8773
- This represents a price increase of 2%, so the trader decides to close the position to secure their profit
As per the above, 2% gains on a stake of $100 amounts to a profit of just $2. Therefore, this highlights that the trader would need to consider other options when trading profit full-time, to make the process worthwhile.
One such option is to apply leverage to the position. As we explain in more detail later, this will amplify the size of the stake through a short-term brokerage loan. Retail clients in the US can obtain leverage of up to 1:50 when trading major forex pairs. Therefore, in the example above, a profit of $2 at 1:50 leverage is amplified to $100.
Another factor to consider when assessing potential profit margins when trading forex is the frequency in which positions are entered. For example, a day trader might enter and exit several forex positions before the end of the trading session. A swing trader, however, will often keep a forex position open for several days or weeks.
Ultimately, in terms of how much a forex pair can move in a single day, this really depends. For instance, major pairs like EUR/USD and USD/CHF will often move by just a small fraction of a percentage. However, exotic pairs, such as USD/ZAR or EUR/TRY are a lot more volatile.
Forex Trading: What are the Risks?
Now that we have summarized the question – is forex trading profitable? – we can now explore some of the core risks that need to be considered before entering this marketplace.
First and foremost, all forms of trading – including forex, come with an element of risk. This is because if the trader speculates on a forex position incorrectly, upon closing the trade, they will be doing so at a loss.
- For example, consider an inexperienced swing trader that risked $10,000 on a GBP/USD long order one month ago.
- As of writing, the swing trader would now be looking at a loss of over 4%.
- In the world of forex, this is huge – especially when leverage is involved.
- As a result, the best way to avoid sizable losses is to ensure that stop-loss orders are always deployed.
Another risk of trading forex is that this marketplace is extremely unpredictable. This often leads to uncomfortable levels of volatility, even with major currency pairs. With that said, seasoned currency traders will often crave volatile market conditions, as this presents more opportunities to enter favorable positions.
Perhaps the greatest risk of forex trading is an over-usage of leverage. As noted above, US retail traders can access leverage of up to 1:50, while in the EU, this is lower at 1:30. This means that the trader can amplify their stake by considerable amounts. And as such, high levels of leverage will also amplify losses.
- Consider a trader that enters a $100,000 position with leverage of 1:50.
- This means that the trader is only required to put a $2,000 stake upfront to execute their position.
- As such, if the position declines by 2%, the broker will automatically liquidate it and thus – the trader will lose their entire $2,000.
Once again, by having an understanding of risk management in forex, unfavorable losses can be avoided.
Top 10 Profitable Forex Trading Strategies
At this stage of our guide, we have answered the question – is trading forex profitable, and what risks should be considered? In this section, we now offer some insight into the most profitable forex strategies:
- Day Trading – Enter and Exit Multiple Forex Positions Within a Trading Day
- Scalping – Attempt to Make Modest but Frequent Gains From Small Price Movements
- Swing Trading – Trade Forex With More Flexibility Over Several Days or Weeks
- Positional Trading – Long-Term Forex Trading Strategy
- 50-Pips a Day Forex Strategy – Aim to Make Daily Gains of 50 Pips
- Daily Chart Forex Strategy – Capitalize on Daily Pricing Trends
- Copy Trading – Mirror the Trades of an Experienced Forex Trader
- Margin Trading – Enter Higher Value Forex Positions With Leverage
- Forex Signals – Semi-Automated Way of Trading Forex
- Automated Bots – Allow an Automated Bot to Trade 24/7
Read on to learn more about the proven profitable forex trading strategies listed above.
Most Profitable Forex Trading Strategies Reviewed
To fully assess is forex profitable, traders need a strategy.
Therefore, before making a forex trading profit plan, consider one of the strategies discussed below:
1. Day Trading – Enter and Exit Multiple Forex Positions Within a Trading Day
The first strategy to consider is day trading. In a nutshell, day traders keep a position open for a matter of hours or even minutes. The main concept is to ensure that the forex position is closed by the end of the trading day. For example, the day trader might look to go long on GBP/USD and close the position a couple of hours later after it has generated gains of 0.4%.
Crucially, due to the short-term nature of day trading, profit margins will be modest. On the flip side, traders will typically enter multiple positions each and every day. This means that small profits can quickly add up. Furthermore, day trading is one of the least risky strategies that can be implemented in the forex space.
The reason for this is that day trading positions are kept open for such a small period of time that hugely volatile swings are unlikely. This is especially the case when focusing on major currency pairs that attract high trading volumes and liquidity levels. With that said, day trading exotic currencies will increase the risk spectrum considerably.
Another important thing to note about day trading is that this strategy is only suitable for technical traders. This means spending the trading day analyzing pricing charts, deploying technical and economic indicators, and attempting to find trends. As a result, day trading is perhaps more suitable for this with previous experience in the forex arena.
2. Scalping – Attempt to Make Modest but Frequent Gains From Small Price Movements
Scalping is an even shorting forex strategy than day trading. In a nutshell, the objective of scalping is to enter and exit positions over the course of a few minutes with the view of making minute profits. A profitable forex scalping strategy might enter dozens of positions each and every day. The scalper will end the day at a profit when they generate a surplus in winning trades.
In order to scalp trade forex successfully, there needs to be a firm understanding of how to deploy technical indicators – even more so than day traders. This is because the trader will look to take advantage of a short-term consolidation trend. For instance, let’s say that EUR/USD has been trading in a tight range of 0.05% for several days.
This would be highly conducive for a scalper. For instance, at the lower end of the range, the scalper can enter a suitable buy order. At the higher end of the range, a sell order can be entered. On either side, the scalper would also need to enter stop-loss orders. This ensures that the scalper doesn’t encounter a sizable loss.
After all, due to the small profit margins at hand, just one sizable loss can wipe out the trader’s entire profit for the day. Another thing to note about scalping is that the process requires a broker that offers super-tight spreads and low commissions. It also requires a large account balance or the utilization of leverage to make the scalping process worthwhile.
3. Swing Trading – Trade Forex With More Flexibility Over Several Days or Weeks
We would argue that for complete beginners, swing trading is the best strategy to incorporate. The overarching reason for this is that unlike day trading or scalping, swing traders have much more in the way of flexibility. This is because swing traders can keep a forex position for anywhere from a few days to several weeks.
As a result, there is no immediate pressure to close the position because the trading day is about to end. Now, swing trading is mainly focused on short-to-medium term trends. The objective is, therefore, for the swing trading position to remain open for as long as the identified trend remains in place.
When it appears that the trend is about to reverse, the swing trader will not only close the original trade – but enter an opposite position. For example, let’s say that a swing trader enters a short position on GBP/USD at 1.38. Over the course of the following two weeks, GBP/USD continues on a downward trajectory.
As such, the trader is looking at gains of 7%. However, it now appears that GBP/USD has found a bottom and thus, is about to enter a trend trading reversal. With this in mind, a swing trader will initially close their GBP/USD short position at 7% gains. Then, the swing trader will enter a long position on GBP/USD to capitalize on the newly identified trend.
4. Positional Trading – Long-Term Forex Trading Strategy
Forex and long-term trading are two concepts that are rarely discussed in the same sentence. However, this is exactly how some forex traders will look to approach the market. Put simply, those deploying a positional trading strategy have the freedom to keep forex trade open for several months or even years.
There are several pros and cons to consider when engaging in positional trading. First and foremost, it is certainly true that some currency trends last for multiple years. Let’s take GBP/USD as a prime example. Prior to the Brexit vote in June 2016, GBP/USD was trading in the $1.5-1.6 pricing range.
On the day of the vote itself, GBP/USD was at $1.49. However, after it was announced that the referendum went in the favor of Brexit, GBP/USD entered a prolonged downward spiral that has subsequently lasted to this day. Although Brexit isn’t the only economic driving force behind the downfall of GBP/USD, this is a clear example of how positional traders think.
For instance, the very moment that the referendum vote was announced, a positional trader would have no doubt entered a suitable short-selling position. With that said, the key problem with positional trading in forex is that fees can very quickly add up. After all, forex brokers charge overnight funding fees for each day that the position remains open.
Note: To avoid the high fees associated with positional trading, it might be worth exploring other financial instruments to gain exposure to a long-term trend. In this regard, both ETFs and futures are worth considering.
5. 50-Pips a Day Forex Strategy – Aim to Make Daily Gains of 50 Pips
Ever wondered what is a Pip in forex? This strategy seeks to make a forex trading profit per day. That is to say, the trader will attempt to generate daily gains of 50 pips. A pip – or percentage in point, is a unit of measurement that calculates the minute price movement of a forex pair. For example, let’s say that AUD/USD is trading at 0.67917.
If AUD/USD increases to 0.67920, this would represent a price rise of 3 pips. Therefore, in this example, the trader would need to make an additional profit of 47 pips to reach their daily target. The 50-pips a day strategy isn’t really viable in the long run, as it’s best to close positions based on existing trends and individual analysis, rather than a daily profit target.
Note: It might be worth utilizing a forex trading profit calculator when attempting this strategy.
6. Daily Chart Forex Strategy – Capitalize on Daily Pricing Trends
This strategy has a specific focus on daily chart movements. As such, the first step is to choose a suitable pair and change the candlestick timeframe to daily. This will then display the price and trending lines at the end of each trading day, for a prolonged period of time.
The overarching objective is to assess what trends can be identified from the daily price movements of the respective pair. This can be achieved by deploying a number of core technical indicators, such as the Fibonacci retracement. This will help identify whether the daily trend is about to approach a valid support or resistance level.
7. Copy Trading – Mirror the Trades of an Experienced Forex Trader
An ounce of experience is better than a ton of theory is certainly the case when entering the forex market for the first time. In this regard, those without any prior experience in buying and selling currency pairs might be better suited for a Copy Trading tool. At the regulated brokers eToro, for example, it is possible to mirror the buy and sell positions of an experienced forex trader.
This enables beginners access to a fully automated forex trading process – meaning no technical or fundamental analysis, and no order placing. For instance, if the chosen trader risks 7% of their capital on a GBP/EUR short position, this will be mirrored in the eToro user’s account. The minimum stake for each trader copied is just $200 – and no additional fees apply.
Note: When using the eToro Copy Trading tool, it is wise to diversify across many different profitable forex traders.
8. Margin Trading – Enter Higher Value Forex Positions With Leverage
Leverage is a tool offered by most online forex brokers and it allows traders to enter positions with more capital than they have in their accounts. As we mentioned earlier, retail clients in the US and EU have access to leverage of up to 1:50 and 1:30 respectively, when trading major forex pairs.
For instance, an account balance of just $50 at leverage of 1:50 would permit a position of $2,500. Leverage can come in handy when the trader does not have a large enough account balance to make forex trading worthwhile – owing to the small profit margins on offer. Leverage should, however, be utilized wisely.
9. Forex Signals – Semi-Automated Way of Trading Forex
Another strategy to consider when attempting to become profitable in this trading industry is forex signals. Put simply, signals are offered by third-party analysts that scan the forex markets throughout the day. Members will pay a subscription fee and in return, will receive trading suggestions from the signals provider.
The best forex signals in this space should contain all of the information required to then place a trade with an online broker. For instance, Learn2Trade distributes up to 5 signals per day to its premium members – all of which contain the pair that should be traded, the entry price, and what stop-loss and take-profit orders should be placed.
10. Automated Bots – Allow an Automated Bot to Trade 24/7
The final strategy to consider when assessing the profitability of forex is an automated trading bot. The overarching concept here is that the bot will trade on behalf of the investor. It will make trading decisions based on pre-defined conditions – such as going long on GBP/USD when the RSI falls below a reading of 25.
On the one hand, automated bots are appealing to passive investors, especially considering that they can trade 24 hours per day, 7 days per week without suffering from fatigue or emotions. However, bots are known to malfunction, meaning that the trading account can be wiped out in one fell swoop. This is why Copy Trading is a preferred option by many.
Nonetheless, forex bots can be installed into MT4. The investor can then connect MT4 to a regulated forex brokerage account. This platform supports 0% commission trading across 138 forex pairs.
Learn More: Are forex trading bots profitable? Find out in our guide on algorithmic trading.
Where to Trade Forex in 2023 – Best FX Brokers Uncovered
This guide has now answered the question – is forex day trading profitable? We have also covered 10 of the most profitable forex strategies to consider implementing.
To conclude, we will now briefly explore where to trade forex in a secure and cost-effective way.
1. eToro – Low-Cost Forex Broker With Copy Trading Tools
eToro is a top-rated brokerage that offers Copy Trading tools. This enables eToro users to trade forex passively. Any orders placed by the chosen trader will be copied over to the eToro portfolio automatically.
This requires a minimum capital outlay of just $200 per trade. Traders can also use eToro to buy and sell forex pairs on a DIY basis. The broker operates a cost-effective spread-only model that starts from 1 pip.
eToro is regulated by the SEC, ASIC, FCA, and CySEC – so is considered a safe and secure forex broker. eToro accounts take just minutes to open and supported payment methods include debit/credit cards, e-wallets, and bank wires.
|Minimum Lot Size||0.01|
|Leverage||1:30 for retail clients|
|Deposit fee||Free for USD payments, otherwise 0.5%|
|EUR/USD spread||1 pip|
|Overnight fee||Depends on market conditions|
|Copy Trading||Yes, proprietary Copy Trading tool|
78% of retail investor accounts lose money when trading CFDs with this provider.
This beginner’s guide has explored whether or not forex trading is profitable. To conclude, forex trading can be profitable, but traders must ensure that they have a risk management plan in place, alongside a suitable strategy.
To start trading forex right now on a commission-free basis, consider joining eToro. This regulated broker offers tight spreads across 49 currency pairs, in addition to support for leverage.
Your capital is at risk. 78% of retail investor accounts lose money when trading CFDs with this provider.