Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

Is forex trading profitable?

The forex market is a popular choice among traders due to its high liquidity and the fact it is open for 24-hour trading. However, all traders will lose money on some trades, with even the best and most-experienced traders never winning 100% of their trades.

Being a successful forex trader isn’t necessarily defined by a high percentage of winning trades. Even if you win 90% of your trades, if the remaining 10% are losing trades that wipe out large amounts of your capital, you’ll end up in a worse position. These losses may come down to a lack of experience, planning, discipline, or not implementing appropriate risk management tools, such as stop-loss orders.

When it comes to trading forex, traders should not anticipate to win every trade, or to make large profits with every win. Likewise, it should not be considered a ‘get-rich-quick’ scheme – your forex trading strategy should be nurtured and perfected in order to improve your overall performance. 

Developing a forex trading plan

It's vital to take the time to develop a trading strategy and practise this on a demo account, before trading for real. You could practise various strategies, including swing trading or scalping, to work out your preference, then take the time to practise the strategy before risking any capital.

Your forex strategy will also be dependent on the amount of time you can dedicate to trading. If you have a full-time job, day trading might not be the most suitable option for you, as you may struggle to spend enough time monitoring the markets.

Your trading plan should have a measurable and achievable target. This could be a percentage amount that you want to increase your overall capital by each week, or how much you want to increase your account size by in six months. By doing this, it enables you to track your performance and have attainable goals, rather than general assumptions, such as thinking you’ll become vastly wealthy from forex trading in a matter of weeks. 

Forex economic calendar

Forex trading doesn’t begin and end with the trade, as you must be able to spend time perfecting your strategy, analysing your previous trades and staying up to date with economic news. Overlooking these additional components will prevent consistent profits and you could underestimate the market volatility.

Certain dates, for example, when data is released or particular events happen, can make the market more volatile, potentially creating dramatic changes in price. This can lead to a trade being stopped out, and can also impact profits and losses. Staying in tune with the economic events and how these data releases could impact your forex strategy is essential.

What can hinder profitability

  • Position size: either by opening too big a trade and risking too much capital, or going too small to make a meaningful return
  • Lack of awareness of the market environment
  • Not having a trading strategy in place, increasing the risk of losses
  • Failing to stay up to date with economic news and being impacted by unexpected volatility, causing a dramatic change in price
  • Lack of confidence with both fundamental and technical analysis
  • Abandoning a trading plan – winning a trade when you haven’t got a trading plan in place could make you think it’s not necessary; consequently, it leads to a scattered approach to trading, running a higher risk of losses
  • The forex pair you choose – the major pairs will have less volatility and higher liquidity due to more stable economic environments, comparatively exotic pairs contain currencies from less developed, less stable countries

Forex trading risks

  • As with any trading, there’s the risk of being liquidated and losing your capital
  • Trading on leverage is risky as although it can result in larger profits, it can also result in large losses – this makes it all the more important to have a stop-loss in place
  • Market volatility can lead to gapping and slippage, resulting in your positions being closed at unfavourable prices, this is often as a result of unexpected market news
  • If your margin level drops below 100%, you will receive a margin call as you cannot cover your margin requirements – when it drops to 50%, some or all positions will be liquidated, potentially at a loss to you

Summary

Forex trading can be profitable, however, not for all traders and with not all of the time – there are no guarantees. It is dependent on the level of dedication you put in to developing your trading plan, as well as perfecting your strategy. This requires a disciplined trader who has an awareness of the market, and confidence with fundamental and technical analysis.

Assuming that every trade with no preparation, prior research or strategy will be profitable, will place more risk upon an already risky environment. Whenever trading, as well as having a well-versed strategy in place, risk management tools like stop-losses should be implemented to prevent significant losses.

Learn more about forex trading with us.

Or test your trading with a demo account on our Next Generation trading platform

Disclaimer
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

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