The short answer to the question “can you make a living trading forex?” is yes, of course you can. Many people make an extremely comfortable living doing just that.
However, on a more personal level, whether or not you can do the same depends very much on you. This involved your goals and ambitions; your dedication; your existing knowledge; your willingness to learn new things continually; your attitude to risk and ability to ride the occasional storm; and your perseverance. There is no other market as liquid as forex, and there are forex traders of all sorts and sizes and from many different walks of life.
Many professional forex traders start their careers as amateurs and budding investors setting out to understand more about how the forex market works and how they might be able to make money on it. The process is aptly described by the old nautical expression “learning the ropes”. And be prepared for the fact that there are some problematic ropes to learn. Fortunately, there are many resources available to help you do so.
Learning the jargon
Forex trading is, like many similar activities, steeped in jargon, but once you know it, much of the rest is just common sense. Essentially what you are aiming for is to predict the value of one currency compared to another accurately. These are called currency pairs, for instance:
- Major currency pairs such as EUR/USD
- Minor currency pairs, which are currency pairs that don’t include the dollar such as EUR/GBP
- Exotic currency pairs which have a major currency with one of a developing economy such as USD/HKX.
We measure currency movements in PIPs, which is short for point in percentage and is the smallest amount that a currency can change. In USD currency pairs, it is $0.0001. Typically the EUR/USD currency pair might move 60 to 100 pips in a day. While that might now seem very much, forex traders tend to be heavily leveraged, so even such a small movement could have a significant impact on your trading account.
You purchase currencies in lots, with a lot meaning 100,000 units. Fortunately, you can also buy mini lots (10,000 units), micro-lots (1,000 units), and nano-lots (100 units).
Of course, that’s just the start. Here is a comprehensive list of forex jargon covering everything from “Accrual” to “Yuan”.
Putting your money where your mouth is
To make money, you need to invest money, but at the risk of mixing metaphors, you don’t need to jump in at the deep end. You can start a forex trading account for a minimal amount, but an excellent place to start for a novice might be £1,000 and build up gradually from there. Naturally, the more you invest, the more money you stand to make, but of course, you will risk losing more too. The golden rule is never to invest more than you can afford to lose. And don’t give up your day job until you have developed a strategy that you can rely on to provide at least a steady income.
Choosing a money-making strategy
You can choose from many different forex trading strategies, and each of them has the potential to make significant amounts of money. To name just a few; day trading, where you open and close positions within a day; swing trading in which trades last for days or months; scalping which aims to make multiple small profits; position trading where you look for long term gains perhaps many months or years; and arbitrage where you seek to profit from price disparities in forex markets.
Whatever strategy you will choose, you will win some and lose some. Your aim must be to increase the former and decrease the latter; however, with an overall win rate of just 60%, you should be making a significant amount of money.
How much money can I make?
Remember that stop loss is your friend, and you need to be careful not to use too much leverage—fortunately, most brokers cap leverage for non-professional traders. Most forex traders limit their risk to 1% of their capital per trade.
Don’t expect to get rich quick. A realistic return for an averagely successful forex trader might be 5% to 8% so if you are aiming for an annual profit of £10,000 you will need £200,000 in your capital account. You might get lucky and make much more, some people do.
The contents of this website are intended for educational and information purposes only and do not constitute any form of advice or recommendation and are not intended to be relied upon by you in making (or refraining to make) any specific investment or other decisions. Appropriate expert independent advice should be obtained before making any such decision. We cannot and do not offer individual investment advice.