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How to make money in forex

To make money in forex trading, you open an account with a broker, trade currency pairs successfully, bank the profits, and then toast your rapid success from the deck of your luxurious motor yacht with your (newly discovered) beautiful friends. Sigh, if only it were that simple.

The boulevard of broken forex dreams is long and winding, with many auto wrecks abandoned at the side of the road. The low success rate in forex trading is unfortunate because any failure is easy to avoid.

To become moderately successful at trading forex (at least to quickly learn how to reach break-even) shouldn’t be a complicated or tricky process; if you stick to a few simple rules, you’ll have every chance of making money trading FX.

In this article, we’ll discuss the main subjects of how to make money in forex, including:

Removing impatience
Stop losing to start winning
Choosing a broker
Building a plan
The disciplined trader wins
Realistic targets

Remove impatience to make money trading FX

Impatience is a curse in FX trading. Once you discover the industry, you want to get involved asap and trade the markets. No matter how many experts tell you to slow down, you ignore them. Perhaps some of the blame here lies with the industry that pushes the benefits without stressing the pitfalls.

If you want to profit from trading FX in five years, don’t burn through your funds and get disillusioned within five weeks. So, take your time selecting a broker you feel comfortable with, experiment with their demo account, then open a live trading account with a small amount of your cash.

Risk a small percentage of your first account on each trade while you’re developing your edge. The edge (a combination of your method and strategy) is simply the positive expectancy you have in a process that wins more than it loses.

Set yourself some realistic milestones. For example, you’ll develop an edge inside six-twelve months. You’ll be consistent, profitable and entirely comfortable with your position in the industry within two years.

Stop losing when forex trading to start winning

To make money trading forex, you firstly need to reach a break-even situation. Break-even is the platform (excuse the pun) on which you build your success.

If your method/strategy is bringing you close to winning, then surely it only needs to be tweaked to move into profit?

During your mission to reach break-even, you’ll build a trading plan. You’ll also quickly rank your broker and discover more about forex trading than you ever thought possible at the outset.

So, let’s quickly look at how to evaluate brokers and what to put in your forex trading plan.

Choosing the right broker to make money trading forex

You don’t have to open many brokerage accounts to find a broker that suits you, instead concentrate on creating a tick box list having the following qualifying criteria.

Execution only
No dealing desk
Low spreads
Good online reputation
Licensed in highly regulated jurisdictions
Excellent communication
Highly respected trading platforms

Do your research on the broker. If they tick all the above, then it’s very much personal choice where you trade.

What to put in your forex trading plan

It would help if you thought about your FX trading plan while picking a reputable and reliable broker. So, here’s a suggestion of what the programme should have.

What currency pairs to trade
What risk per trade
What risk in total
When to trade
What leverage and margin to apply
What method/strategy to put in place

There are some other inclusions, but the above covers most of the bases. Again, you should research the key elements to understand each topic’s impact on your trading outcomes.

Become a disciplined trader

Success in any field requires dedication and discipline. Forex trading isn’t a sport, but at times, sport is a useful comparison.

Consider an elite athlete who’s at the very top of their profession—dedication bordering on obsession, professionalism and discipline that gets them and keeps them there. That’s the level you must aim for if you don’t want to be part of the 80% of FX traders who lose (according to recent ESMA metrics).

It would be best if you stuck to your trading plan, and you must control your emotions; every aspect of your trading needs to be highly disciplined.

What’s the best way to make money trading forex?

The best way to make money trading forex is slowly, and there are no shortcuts to success. However, you can save yourself a lot of wasted time, distress and lost funds by paying attention to sound advice, such as written in this article.

Start by trading one currency pair efficiently and profitably and build on that success. For example, if your strategy doesn’t work on a currency pair like GBP/USD, USD/JPY or EUR/USD, it probably won’t work on minors or exotics.

On the other hand, major currency pairs like those listed above will have more trading volume; therefore, the spreads, fills, and slippage will be more in your favour.

Once you’ve nailed your edge, you can carefully apply more leverage and increase your risk per trade. Perhaps, instead of risking only 1%, you could move up to 2%. But you can only do this when you have absolute 100% conviction that your method works in all trading conditions, whether you’re long or short in ranging and trending markets.

How much do forex traders make?

The most skilled forex traders have raked in billions during their careers. They most likely work at an institutional level in hedge funds or typically on the FX desks at behemoth banks like Morgan Stanley and JP Morgan.

There are no verifiable stories of retail traders who start with a few thousand dollars in their brokerage and grow their accounts to billion dollars. But sadly, such fantasy success stories are published by marketers desperate for you to open an account so they can get the commission.

The wisest retail forex traders know the limits of their platform and the funds they have. So, if you make gains of 1% per week, close to 50% per year, you’ll be up there with the absolute best traders on planet earth.

The shame is that the trader working for JPM will manage a $1 billion account making $500 million for the bank’s clients, whereas you might work a $10,000 budget and generate $5,000 in a year.

Ok, that’s enough negativity; here’s the good news.

If you consistently compound your 1% a week winnings over ten years without withdrawing any capital, then the returns could be considerable.

For example, your initial $10K deposit in your trading account would become $1.34 million. Don’t believe us?

Now, this example proves that significant returns are available to all of us even if we only have a relatively modest sum to invest and trade in the forex market. On average, you’d need to make a return of 0.2% account growth per day to achieve the number quoted above. That’s not a fanciful number; it’s an achievable goal.

Thinking small to make it big

To expand the example above a bit further, consider this. If you risk 0.1% of your $10K account per trade and cap your potential loss to 0.5% per day, then you could build a plan to achieve the ten-year growth illustrated.

0.1% account risk is $10, so you'd be risking no more than $50 per day; that reads like a controlled and patient route to the ten-year target quoted.

If you win three trades out of five, a 60% win-loss rate, then you can hit these targets.

This procedure is how the cleverest amongst us lay out a plan to make money through forex trading; they act more like mathematicians obsessed with rewards versus risk and probability.

Use forex margin and any leverage wisely

Understanding the concepts of margin and leverage and how you can use them to your advantage is critical to making money trading forex.

Think of margin as a percentage of your account the broker sets to one side to cover any potential loss enabling you to keep a position open.

Leverage is borrowed money (called capital) to invest in a currency, stock, or security. The concept of leverage is widespread in forex trading. By borrowing money from a broker, investors can trade more significant positions in a currency. In effect, leverage is money your broker lends you to control more significant forex positions than your account size would typically allow.

In summary, being patient and disciplined, developing an edge and trading plan, understanding how to use leverage and margin, choosing the right broker and setting realistic and achievable targets are some of the foundations you need to put in place to make money trading forex.

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