Why is trading in Forex profitable for only some of the traders?
As already mentioned above, not everybody can be profitable when trading Forex online. Since we already brought an example through non-related things such as pens, now let’s try to bring in an example talking about actual currency pairs.
You see, when you are starting a trade, let’s say on EUR/USD, you are basically telling the market that you want to buy USD with Euros. The market then finds a suitable trade where another person wanted to buy Euros with USD. The market then matches these trades and confirms the order.
You get your USD and the other person gets EUR. Once the exchange rate changes, it will be determined who managed to profit from Forex
trading that was just done.
Let’s say that 1 USD = 1 EUR and you want to buy 10. In order to do this, you would have to exchange 10 EUR. After a day from this exchange, the exchange rate turns to this: 1.1 USD = 1 EUR. What this means is that now you need 1 dollar and 10 cents to buy 1 euro. If you were to decide that you want your 10 EUR back, you would have to have 11 USD this time. This means that the exchange rate determined that you didn’t profit from the trade, while the person that traded the USD with you did.
Trades like these happen 24 hours a day, 5 days a week, and thanks to computers millions of trades can be processed within minutes. Therefore, in the end, your 1 trade may not be profitable, but another could be. If you have a larger balance at the end of the day, compared to what you had in the beginning, then it’s usually considered that your Forex trading profit for the day was positive.
Ways to potentially stay profitable when trading Forex
There are multiple ways where you can increase your chances of staying profitable when trading Forex. Naturally, none of them is 100% accurate, because it’s impossible. If there was a strategy that had a 100% success rate, then everybody would be using it and the market would simply stop working.
Here are some ways to potentially stay profitable:
- Low volatility pairs
- A diverse portfolio
- Planning ahead
Let’s take a look at them on a much more detailed basis.
Low volatility currency pairs
Is Forex trading profitable if you’re making very little profit? Yes, of course, it is. In fact, making little by little is usually how people become experts or reach fortunes in the market.
A low volatility currency pair is a pair that does not change its exchange rate too often. And if it does, then the change is very small. Choosing these currencies helps traders avoid the risk of losing money on the market, but it doesn’t really help them increase their profits as well. These pairs are usually used as a safe option next to other, more volatile pairs.
A diversified portfolio means that you are trading more than 1 currency pair. Basically, traders usually diversify their portfolio when they are not sure that their first choice is safe enough.
For example, trading a currency pair that has high volatility, and another one that has low volatility is a popular strategy. One has high risk, but high return, while the other has the opposite. But how is Forex trading really profitable with this? Well, if you are unprofitable with one currency pair, there is always another that you can rely on. It’s basically like a backup plan if things don’t work out too well.
Looking at the big picture
The next step is to look at the big picture. Was your day not profitable? No worries, you can always look at the weekly profits. The week is also not profitable? No worries, you can always look at the monthly profits. This can go on and on. As long as the balance shows more than it was at a certain time, then the profitability has been reached, no matter how many bad days there were when getting to it.