Yes, you can make money trading Forex, 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…
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 day 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.
The best forex hedge funds in the world definitely 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 probably a lot less than you earned 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.
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 were 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.
- Related guide – Best brokers for shorting shares.
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 your loses – the only way to trade.
- Further reading: Compare the best professional trading accounts here