Can you give up your day job to trade Forex for income?

No, you cannot – don’t be a complete idiot.  Foreign exchange is one of the riskiest markets in the world to speculate on.

The best forex brokers in the UK provide access to the most liquid and highly traded FX pairs because they are there.  They’re not Everest, you don’t have to trade them just because they are there. Or think you can chuck in your nine-to-five job and try and become a professional trader because you’ve seen some flash git with a rented Lambo in a fake Instagram Forex trading lifestyle story.

The best forex traders, and by “best” I mean professional and institutional Forex traders that manage billion-dollar hedge funds, make money by having an effective trading strategy based on significant post-execution trade management.  In actuality, the top traders only really get it right about half the time – which are pretty poor odds considering that FX prices either go up or down on a scaled basis.

Is getting it right half the time in Forex trading enough?

Just read Art of Execution, it’s a fantastic book by Lee Freeman-Shor who managed around $2bn at Old Mutual. Over 7 years he gave 45 of the world’s top investors between $25m and $150m to invest in their best ideas. Turns out that most of these ideas where wrong.

But and this is a big BUT. Even though most of their trading ideas lost money, overall the investors made a profit. How so? Well, read the book, you’ll thank me for it. It’s only 200 pages.

We also covered this when we wrote about how to find out what the hedge funds are shorting. Simon Savage was quoted in the FT say that a GLG manager with a 50% success rate is considered a good stock picker.

True the above two examples are about stock trading, but it translates to all trading. The way professional currency traders make money is by having an effective Forex trading strategy.  This strategy is basically run your profits and cut you loses – the only way to trade.

Can you make money trading Forex?

Of course you can make money trading FX, I’m not saying you can’t, but you can also lose a lot. If you are trading forex as your main source of income you need a large amount of money to begin with.

There is an old city joke:

How do you make a small fortune trading Forex?

Start with a large one…

Jokes aside though. The best hedge funds in the world definately won’t make 50% back for their investors per year, every year. But we’ll use that as an example anyway.

If you have £10k in the bank and want to trade Forex for a living and make a 50% return on your money you’ll earn the grand total of £5,000 per year. Which is £416 per month. The good news is that if that’s you’re only income then you won’t have to pay tax because you’ll be earning less than someone on benefits.

What if you had £100,000? Well then you would have worked very hard to save that much and it would be a shame to lose it all trading Forex. But if you insist, and you make a 50% return (let’s say you do it with a spread betting broker so you don’t have to pay tax on your profits) you can at best make £50k a year (or just over £4,000 a month). £4k a month is a probably a lot less than you earnt before if you managed to save £100k.

And to be honest with you if you are making a 50% return trading Forex, then you are spending about 20 hours a day researching the markets and glued to the screens. Not, as social media may have you believe, sitting by the pool or on a rooftop escaping the winter sun in Thailand.

Don’t be taken in by get rich quick schemes and run like the wind from any broker that advertises profits are easy. And don’t get scammed into trading with some bucket shop offshore broker run by a bunch of telesales staff.

What are the alternatives to trading forex?

  • Index trading – a bit easier because it’s based on the fundamental values of the companies it consists of. Also slightly less volatile.
  • Commodities trading – pegged to a single commodity like Gold or Oil. Still good news flow, but very volatile
  • Stock Trading – basically taking a bet on a single company – loads to choose from and with a huge amount of research available. The stocks in the top indices are the less volatile with the best liquidity.
  • Fixed income trading – trading interest rates within a fixed range
  • Fixed income investing for income – buying bonds and gilts to receive income from coupons – low risk and relatively low reward. Unless you buy junk bonds well below par in which case the risk and reward increase significantly.
  • Dividend investing – buying shares with high dividend yields to receive income from the dividends. A bit riskier than bond investing, but there is capital upside (and downside) to consider.
  • Options trading – you can trade options on almost anything. If you are buying you pay your premium and that is your max loss on the option (can be more if you are delivered on). If you are selling loses are unlimited so watch out.
  • Cryptocurrency trading – the highest risk of trading as cryptocurrencies are about as volatile as they come with a price purely dependent on investor demand.

So when should you trade Forex?

Quite frankly whenever you want. The market is there and it’s there to be traded, beaten, outperformed, hedged and enjoyed.

If you fancy it, trade it. But go in with your eyes open. If you want to try and make some money, who is the nanny state to tell you what you can or can’t do. Why should the European regulator (ESMA) insist on scaring you with other peoples CFD  trading losses?

After all, maybe you’ll be part of the 20% that makes money.

Who are the best brokers to trade Forex with?

The best forex brokers are in the UK and are regulated by the FCA which means that they must adhere to a very strict set of rules when advertising online.  All legit advertising must be balanced and fair.

You’ll see lots of advertising from big companies like:

All of the above only highlight their products – not how easy it is to make money.

For whatever reasons you decide to trade Forex, you pays your money, you takes your chance – just make sure you use a decent FX broker.

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Richard started the Good Broker Guide in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.