With approximately 10 million traders all over the world, forex is the largest and one of the most actively traded markets in the world today. In fact, the market is valued at $2.409 quadrillion in 2022, with an average of $6.6 trillion traded each day.
Investing in forex can be extremely profitable and rewarding. However, income level is varied and profits depend on several factors. Like with any financial market, trading currencies involves a lot of complexity and uncertainty, especially in the beginning. While it can be difficult to estimate how much you’ll earn as a novice trader, there are several ways you can reduce risks and maximise your rewards.
Despite the unpredictability of the market, what makes forex particularly attractive for beginner traders is its high liquidity and relatively low costs. It’s also easy to enter the market with round-the-clock sessions and low capital requirements.
In this guide, we discuss how forex works and how you can maximise profits through trading currencies.
What is Forex Trading, and How Does it Work?
The forex market operates similarly to any other market that trades assets such as bonds, shares, or commodities. The main difference is that forex trading is done in pairs. When you sell one currency, you purchase another. Profits are earned if the value of the currency you buy rises relative to the currency you sold.
FX trading is not done in a central location. Instead, it’s run by a global network of banks across four major trading centres in varied time zones: New York, Tokyo, Sydney, and London. Since the market isn’t centralised, you can trade currencies 24 hours a day, making it a very liquid market.
Leverage is commonly used in the currency market. It enables you to buy more currencies even with a limited amount of capital by borrowing money typically from a broker.
Suppose you only have $1,000 worth of capital funds. You can still buy $10,000 of foreign currencies with a brokerage firm lending you the remaining funds. Through leverage, you can trade larger positions and magnify potential profits.
Can Trading Currencies Be Profitable?
The short answer is yes. FX trading has the potential to be highly profitable for active traders because of diverse markets and the availability of high leverage. You don’t need much capital to get started, either. You can even begin with as little as $500 to $1,000. A dedicated forex day trader with a good strategy and leverage can earn anywhere between 5% and 15% monthly.
However, returns don’t happen overnight. The FX market usually demands a lot of patience, discipline, and a system in place to manage risk.
How to Maximise Your Forex Earnings
Invest small amounts when you’re just starting out, so it won’t hurt as much if you do lose money. You can then use the experience to determine what went wrong with your trade and how you can improve in the future.
Novice traders who buy more than they are prepared to lose usually end up exiting the market early due to huge losses. Remember, the greater your risk, the greater your potential to fail, as well.
Forex requires continuous learning. There are a lot of systems, practices, and concepts to learn, such as margins, PIP, lot size, bid prices, and many others.
Likewise, it’s important to stay updated with current events. Global and political events have a significant impact on the value of currencies and the FX market as a whole. Knowing what’s going on in the world will help you make better-informed trading decisions.
Practice on a Demo Account
Before you begin trading real money, test out strategies using a demo account. A demo account simulates the trading experience without risking any real money. This way, you can familiarize yourself with the trading software and get a feel of how the market works.
Work with a Trusted Broker
Forex brokers help you connect with the banks buying and selling currencies. They also help beginners learn the ropes and avoid common trading mistakes.
At Fair Forex, we offer regulated broker services that are fair, transparent, and trader-focused. Our commissions and spreads are one of the industry’s lowest. We also provide you with free signals, indicators, and reliable support every step of the way.
Increase your profit potential and be a successful trader by working with a forex broker with the right knowledge, experience, and attitude. Get started with Fair Forex now.