You probably got interested in the idea of Forex trading because you might have either heard it from friends, or came across some ads about trading Forex.
And all you hear about Forex trading is that you can get rich with very little money.
But with the scams that are plaguing the internet, you’re feeling very skeptical.
In your head, you’re probably thinking…
“Is this too good to be true?”
“Is this just a ploy to cheat my money?”
“If Forex trading is so profitable, why would anyone sell courses to teach it and not just trade to make all the money for themselves?”
“Even if Forex trading is really profitable as people say, how do I know I can be profitable?”
“Is Forex trading even legit?”
With all these thoughts swirling in your mind, you can’t help but feel unsure about whether or not to get into trading Forex.
But yet you’re also hoping that this is true…
That it is really possible to not just make money in Forex, but you can trade Forex for a living.
And if it’s really as simple as what you have heard or read it is, then you feel that this could be the answer to all your problems…
That you can finally quit your dreaded job…
Never have to face your deadbeat boss and colleagues again…
And that you can finally work from home.
So the only big question you have in your mind before you start putting all your hopes and effort into this endeavor is…
“Is Forex trading really profitable?”
And here’s the answer…
You’re not going to like it…
But it’s the cold hard truth, and that is…
It depends.
Understanding What Forex Trading Really Is
Let me ask you a question…
Is outdoor camping fun?
Your answer might be big yes if you had gone camping before and you enjoyed.
But if your experience was a bad one, you might say it’s not fun and you will never do it again.
So what’s the answer – is it yes or no?
As you can see, there is no firm answer.
That’s because “outdoor camping” is just an activity.
Whether it’s fun or not comes down to the person doing this activity.
And that’s the same for trading Forex.
Forex trading is just an activity.
It’s the activity of buying and selling currencies.
Some people engage in Forex trading to hedge the currency risk in their business.
And some people trade Forex for speculation purposes.
So whether or not Forex trading is profitable isn’t the right question to ask because it depends on the person trading Forex.
There are already people and companies making lots of money trading Forex.
For example, hedge funds and prop firms hire traders to speculate in the Forex market.
Take a look at this job listing for a Forex & Crypto Prop Trader:
You can see that I’ve underlined a few sentences in this job listing.
This company is hiring a Forex or Crypto trader to make money for their hedge fund.
Now, Forex and Cryptocurrency are two of the biggest misused terms associated with scams.
Yes, there are people scamming on the internet cheating people with a “get rich quick” mentality of their money using the name of Forex and Cryptocurrency.
But the activity of Forex trading or Cryptocurrency trading isn’t a scam.
If it were, then there wouldn’t be companies hiring traders and paying them huge sums of money to trade for them.
You can see in the job listing above that the company is willing to pay US$200k plus a bonus of $2 Million dollars!
If no one could be profitable trading the Forex market, companies wouldn’t be hiring and paying such huge salaries to get someone to trade the market for them.
The only reason companies are willing to pay such huge salaries is because they expect that the Forex trader will make them much more than what he is getting paid.
Here’s another job listing for a Forex Prop Trader:
You can see that this company says, “USD 1 Million or more in bonus is possible for top performers.”
Then it goes on to say, “Other traders in the branch are already at that level”.
Did you get that?
It means other traders are already making that kind of money trading Forex and other markets for the firm!
When I was a prop trader, I traded in the equities and futures market (including forex futures).
Whether the activity of trading can be profitable was never a question.
Because it’s a given fact that there are people who are very profitable trading the markets, regardless if it’s the Forex market or any other market.
However, when I was a prop trader, there were traders who were unprofitable as well despite trading the same strategy.
Even when Richard Dennis and William Eckhardt trained a group of people now famously known as the turtle traders to trade his trend following system and taught them his strategies, not everyone made money.
So instead of asking whether Forex trading is profitable…
The right question should be:
“Should I be trading Forex? And if so, how can I trade Forex profitably?”
The Big Misconception in Forex Trading
Many people come to Forex trading with a big misconception.
They think that they can learn a few trading strategies and they will be profitable.
Some people even quit their job because they had a profitable month and think that they can trade Forex for a living.
But unfortunately, it’s not that simple or easy as what many people claim it to be.
And if they do, chances are it’s because they are trying to sell you their trading course or program.
You see, trading is like trying to win a sports competition.
You’re competing with some of the best athletes in the world.
They go through years of training just to reach the level they’re at.
So is it possible for you to just pick up a sport today and expect to win the championship next week?
Definitely not.
It’s the same for trading as well.
You are competing with the hedge funds, prop traders, and high-frequency trading algorithms that get in and out of the market within seconds.
Forex trading is widely regarded as a zero-sum game.
And what that means is that in order for you to win, someone has to lose.
To me, the Forex market is like a pool of money.
But in order to have that money, you must have the skills.
Only then will can you be profitable in the long run.
Do you have what it takes to be profitable?
The Reality of Trading For A Living
While the idea of trading for a living is great…
And the feeling from telling others you trade for a living is euphoric…
Especially when you do not have to report to a boss every day, unlike your friends…
To trade for a living is not something that is psychologically easy.
For 4+ years I had been trading for a living.
I was a prop trader and I thought this was the lifestyle I want for the rest of my life…
Until I got married and had a kid.
You see, when you become dependent on the money you make from trading, your trading can no longer become objective.
Here’s what I mean…
When I first joined the prop firm as a prop trader, I was single and had no commitments.
I didn’t have any financial liability apart from my own expenses.
In prop trading, it’s normal to have some months where you’re not profitable.
As long as you’re profitable overall, you’re good.
So even during months where you’re not making money, you don’t feel any financial burden because you’re single and you have no financial liability.
All these changed 3+ years into my job when I got married and my wife got pregnant with my son.
We also had gotten a new home.
Suddenly I have financial liabilities.
I had a mortgage to service monthly, and also monthly expenses for baby food, baby powder, etc.
Money became a big factor.
And at that time, it all solely came from trading the markets.
That pressure affected my trading.
If certain months you aren’t profitable, you don’t get paid.
And when you are profitable, you’re afraid to lose the money you’ve made.
Because of that, I couldn’t trade objectively.
After a year of that, I stopped trading for a living and started a business and continued trading on the side.
So my business became my main income, while trading was my side income.
I didn’t have to rely on my trading to provide for my family.
And because of that, I was able to trade more objectively which resulted in better trading.
What It Really Takes to Trade Forex
There’s a saying that trading psychology is 80% of trading and 20% is just trading strategies.
And that’s very true.
That’s the reason why some prop traders can make money while some can’t…
Even when they are all taught the same trading strategies.
That’s what happened with the turtle traders as well.
Not all of the turtles were profitable despite being taught the same methods by Richard Dennis and William Eckhardt.
In order to trade Forex, or any market for that matter, you need to have two key elements:
- Being objective in your trading.
- Having a well-tested system that has an Edge.
When you have these two key elements, you will stand a chance to be profitable trading Forex.
The Key to Long-Term Profitability Trading Forex
So how do you become profitable?
And not just profitable for a short period of time, but real long-term profitability trading Forex.
The answer is…
To have an Edge in trading.
That means a way to put the odds in your favor so that you will become a winner in the long run.
And in the Forex market, there is a unique way to have an added advantage that no other markets can give…
And that’s to utilize Positive Swaps.
There are two ways to get an Edge in trading the Forex market and you want to use both to put the odds in your favor:
1) Having a Positive Expectancy Trading System
Having a positive expectancy trading system means that your system is profitable and you expect to make a certain amount each trade on average.
To calculate expectancy, you want to know 3 things about your trading system:
- Your win/loss ratio
- Your average profit per trade
- Your average loss per trade
Then you use this formula to calculate your expectancy:
(Percentage of win x Average profit) – (Percentage of loss x Average loss)
So if your trading system wins 50% of the time, and whenever you profit you make $150 on average and when you lose you lose $100 on average…
Then your trading system’s expectancy is:
(50% x $150) – (50% x $100) = $25
That means on average you expect to make $25 per trade.
2) Positive Swaps
The second way, as mentioned earlier, is to get Positive Swaps.
Swaps are either paid to you or taken from you depending on the currency pair you trade and whether you’re Long or Short.
Here’s a table of swaps paid out by different brokers for the USDCHF and USDJPY:
You can see in the image above that most brokers pay you a positive swap when you’re Long USDCHF and USDJPY.
And if you’re Short both currency pairs, then you will have to pay a negative swap.
These swaps are either paid to you or taken from you daily.
That means just by holding your position each day, you can get paid a positive swap.
This positive swap can increase the average amount of profit you make on each trade…
And decrease the average amount of loss you make on each trade.
For example, if on average you make $10 swap on each trade, then using the same expectancy calculation above, your new expectancy would be:
(50% x $160) – (50% x $90) = $35
You would have increased your average profit per trade from $25 to $35, which is a 40% increase!
And the only difference you made to your trading system is to trade the currency pairs that give a positive swap.
And that’s why positive swaps can help you increase your Edge significantly.
Is Forex Trading Right For You?
There’s no one way to answer this.
Most trading “gurus” will tell you that you should trade Forex and join their course so they will teach you how to make money consistently in the Forex market.
But I’m going to give it to you straight.
Whether Forex trading is right for you is really a question that you can only answer and decide for yourself.
It’s like asking, “Is this girl/boy right for me?”
No one will really know except for you because you know yourself better than anyone else.
It’s the same for trading Forex.
But that also means you have to first trade it in order to know whether it’s right or suitable for you.
Forex trading can be a great way to earn an extra stream of income.
But it can also be a very quick way to lose money if you’re not disciplined enough.
So here’s what I suggest…
Use this 5-step process and then decide if Forex trading is for you:
Step 1: Design Your Trading System
Go read everything you can about trading Forex.
You can read all the blog posts I’ve written here on my site.
Then choose a trading strategy that is centered around price action.
Don’t use a strategy that is based on indicators.
You can use indicators as a guide to reading the market, but it shouldn’t be used to define your entry and exit.
Then firm down the rules of your trading system so that there’s no discretion in your trade entries and exits.
Step 2: Backtest.
Once you have come up with your trading system, backtest it.
If you’re unfamiliar with what backtesting is, it’s basically to see how your trading system faired in the past.
There are two ways to backtest.
If you know how to code, you can code your trade system into an Expert Advisor on the MT4 platform and backtest it.
You want to have at least 100 trades in your backtest.
If you’re profitable in your backtest, then move to the next step.
If not, continue to work on your trading system and then backtest it again.
And if you can’t find a trading system that is at least profitable in backtesting, then you have no reason to trade it with real money.
Step 3: Forward Test With A Demo Account.
Now that your trading system has shown that it is profitable from your backtesting, you want to move to demo trading.
That means to trade the market with “play money”.
This will at least give you a simulation of how it will be like trading live.
You want to get at least 20 demo trades in and then see whether you are profitable.
If you’re profitable, move on to step 4.
Step 4: Trade With A Small Live Account.
Now that you have traded your trading system on a demo account and you’re profitable, you can start opening a live trading account with just $1,000.
Some brokers allow you to trade with just a couple of hundred dollars, but I’d recommend at least $500 or $1,000 as a start.
Now, this amount of capital is not going to make you rich, so don’t even think of quitting your job or doing this full-time.
This starting capital is just to “get your feet wet” trading with real money.
At this point, you should only just be trading the smallest possible size.
And most of the time this should be just 1 micro lot (0.01 lots).
The purpose of this is to just test out your trading system and see if it’s profitable across at least 20 trades.
Step 5: Reassess.
Now that you’ve gone through steps 1 to 4, reassess results and how you feel.
Most likely you will not be profitable yet, and you would realize how difficult trading is.
But at least now you have some context to refer to so you can make a decision on whether to continue or stop trading Forex.
If you’ve caught the “trading bug”, then chances are you’d want to continue.
If so, this is the time where you be really serious about trading Forex.
And that means to study the Forex market seriously, and then start creating your trading plan.
Ultimately, Forex trading can be a very rewarding endeavor if you stay in the game long enough.
It takes lots of discipline and lots of hard work.
But if you’re reading that and it’s starting to get you excited, then you will have a chance at becoming profitable in Forex trading.
One more thing…
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Thanks for this Davis!
You’re welcome!
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