Forex Trading, How Profitable It Is?

  • 2022-05-17 11:46:53
  • 5 min read
Forex Trading How Profitable It Is Aa

The Forex or foreign exchange market is one of the largest international financial markets in terms of liquidity and trading volume. It consists of 170 different currencies available for trading 24h a day with the US dollar accounting for 88% of the volume.


When trading Forex, you need to buy low and sell high while following a few important principles:

·       Use stop-loss: Regardless of your trading strategy, pre-defining the closing price will eliminate the risk of losing the money you can’t afford. 

·       Self-Control: Close performance tracking and setting trading rules are key ingredients for successful Forex trading.

·       Stay up to date: Follow the latest updates, announcements, news, and events that could have an impact on the trading conditions.

 

The Forex market consists of major, minor, and exotic currency pairs.

  • Major currency pairs: The most frequently traded pairs, usually provide the lowest spread and are the most liquid. Major pairs always have US dollars (base or quote) with EUR/USD being the most traded (24% of daily FX volume). Examples of major currency pairs are EUR/USD (Euro Zone/United States), USD/JPY (the United States/Japan), and GBP/USD (the United Kingdom/United States).

·       Minor currency pairs: Cross-currency, pairs that do not include the USD are often referred to as “crosses”. The most active ones include Euro, British Pound, and the Japanese Yen. Examples of minor currency pairs: EUR/GBP (Euro Zone/United Kingdom), EUR/CHF (Euro Zone/Switzerland), and EUR/CAD (Euro Zone/Canada).

 

  • Exotic currency pairs: Major currencies paired with currencies of an emerging economy. These pairs are traded less often than majors and minors due to a potential lack of liquidity. Examples of exotic currency pairs:  EUR/TRY (Euro/Turkish Lira) and USD/SEK (US Dollar/Swedish Krona).

 

The big question remains, how profitable is forex trading?

Trading volume is the most important factor when considering possible returns. The larger the size, the greater the profit or loss from price fluctuations. Trading Forex through CFDs means that you could trade much more than the actual deposit which could inevitably increase your profits but can also increase your losses.


Another factor that can have a major impact on profitability is to engage in a series of minor traders rather than one big trade. A safe strategy is to diversify your portfolio to help mitigate risk.


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