New traders often ask me, ‘What’s the best market to trade?‘ or ‘What can I make the most money with?‘. I can understand why, but choosing your trading path isn’t as simple as going for a quick win. You need to look at each market in detail, and there are plenty of factors to consider. Every market has its good points, and for each sector, there are different strategies and times of the day when you can trade.
For most traders, my advice is to start with the Forex markets. Forex is where I started trading over a decade ago, and although I’ve branched out a bit, the majority of my trading is still on currency pairs. For me, Forex trading was definitely worth learning, but what exactly makes this section of the market worthwhile?
There’s a lot to unpack here, and I want to cover what I can remember from my first year learning Forex way back in 2011 and also what I’ve learned along the way. I’ll also include experiences with guiding other traders through the Forex markets and things I wish I had known back then.
Let’s get started!
In this article, we’ll cover
- How easy is it to learn Forex trading
- What results can you expect with Forex trading
- What sets this market apart?
- Alternative markets
Before we start – every trader is unique and learns at a different pace. We’ve coached thousands of traders in the past five years, and we know the value of working with you as an individual trader. This article is a general guide to forex trading, and if you’d like to find out more about how we could help you, there’s a link at the end to get in touch with our team.
Why Choose Forex Trading
In the financial world, Forex trading offers unique opportunities. Here’s what you should consider when deciding if this market is suited for your investment goals.
Benefits
Liquidity: The Forex market is immense, with a daily turnover exceeding $6 trillion. This means you can enter and exit positions quickly due to a constant supply and demand for currency pairs.
24-Hour Market: Unlike stock markets, Forex operates 24 hours a day during the week, offering flexibility to trade at any time that suits your schedule.
Accessibility: Starting Forex trading requires relatively low capital. You can open accounts with some brokers for as little as $50-$100.
Leverage: Traders have access to significant leverage, which can amplify both profits and losses. Use it wisely, and it can be a powerful tool.
Diversity: With so many currency pairs to trade, there’s always an opportunity to profit from different economic events around the world.
Disadvantages
Volatility: Forex markets can experience rapid price movements. While this can mean potential profits, it also brings heightened risk.
Complexity: The interplay of macroeconomic factors that affect currency values is complex. Without proper knowledge, it’s challenging to make informed decisions.
Risk of Leverage: Although leverage increases potential profits, it also boosts potential losses. Mismanagement can lead to significant financial damage.
Self-Directed Learning: You’re responsible for your education and keeping pace with the constantly changing market. This requires time and dedication.
In summary, Forex trading can be rewarding, but it’s critical to assess whether its benefits align with your investment objectives and risk tolerance.
How Easy Is Forex Trading To Learn?
Forex trading, or the exchange of currencies on the foreign exchange market, is a skill that requires both foundational knowledge and practical experience. As you embark on this learning journey, you’ll discover that the basics can be grasped with dedication.
Key Concepts to Understand:
- Currency Pairs: You’ll trade currencies in pairs, buying one and selling another.
- Market Analysis: Learn to analyze the market, including technical and fundamental analysis.
- Risk Management: Essential to protect your capital with strategies like stop-loss orders.
To start, you need to familiarize yourself with fundamental concepts and industry-specific terminology. This is your foundation. Online courses, e-books, and free resources abound, making initial learning accessible.
Practical Steps to Learn Forex Trading:
- Educate Yourself: Use online resources, courses, and books.
- Practice Accounts: Use demo accounts to practice without real money.
- Start Small: Begin with small trades to manage risk.
The complexity increases as you dive into strategy development, market analysis, and understanding of economic factors that influence currency values. Remember, hands-on practice is paramount. Many brokers offer demo accounts where you can simulate trading without financial risk.
Last but not least, your continued education is critical. Markets evolve, and staying informed is a part of the trading process. With persistence and a disciplined approach, you can improve your trading step by step.
What Returns Can You Make As A Forex Trader
When you enter the Forex market, your returns will vary based on your strategy, risk management, and the size of trading accounts you control, whether they’re your own or a prop firm’s capital.
Growing Your Own Trading Account
Initial Investment: How much you start with in your Forex trading account is pivotal. For example, a 5% monthly return on a $1,000 account yields $50, whereas the same percentage on $20,000 provides $1,000.
- Compounding Gains: By reinvesting your earnings, you can grow your account size over time. This compound growth can exponentially increase your overall returns.
Example: Starting with $1,000 and reinvesting a 5% monthly gain, without additional deposits, could grow your account to about $1,795 in one year.
| Month | Account Value | Monthly Profit (5%) | New Balance |
|---|---|---|---|
| Start | $1,000 | – | $1,000 |
| Month 1 | $1,000 | $50 | $1,050 |
| Month 2 | $1,050 | $52.50 | $1,102.50 |
| … | … | … | … |
| Month 12 | $1,710 | $85.50 | $1,795.50 |
Long term, to give you a guideline for my results, I expect to hit between 10% and 20% profit per year using our forex strategies. I’ve seen traders exceed those results, but you also need to consider factors like consistency and trading time.
Trading With A Prop Firm
Prop Trading Benefits:
- Leverage Larger Capital: Prop firms allow you to access larger capital than your own funds, often ranging from $10,000 to over $100,000.
- Profit Sharing: Your returns depend on a profit split, which can vary but often is around 50% to 70% of the profits you make.
Example: Trading a $50,000 prop firm account and making a 5% profit gives you $2,500, of which you might take home $1,250 to $1,750, depending on the profit split.
Potential Earnings Table:
| Account Size | Monthly Profit (5%) | Your Profit (50% split) | Your Profit (70% split) |
|---|---|---|---|
| $10,000 | $500 | $250 | $350 |
| $50,000 | $2,500 | $1,250 | $1,750 |
| $100,000 | $5,000 | $2,500 | $3,500 |
Remember, these examples assume constant returns, which is not always realistic in actual trading. Risk management and continued learning are crucial to maintaining consistent performance, and a major part of this is learning to manage your trading psychology to deal with drawdown periods.
Alternatives To Forex Trading
When you’re considering diversifying your investment portfolio beyond Forex trading, you have several options to explore. Each alternative comes with its unique set of risks and opportunities.
Stock Market: Investing in stocks allows you to purchase shares of companies. You’ll profit when the value of your shares goes up, and you may also receive dividends if the company distributes profits.
- Pros: Potential for substantial long-term growth.
- Cons: Can be volatile in the short term; requires research into companies.
Cryptocurrencies: Digital currencies like Bitcoin and Ethereum are newer investment avenues. They’re decentralized and can offer quick gains due to high market volatility.
- Pros: High volatility can lead to significant returns.
- Cons: Extremely unpredictable; regulatory and security risks.
Commodities: Trading in physical goods like gold, oil, or agricultural products is another alternative. Commodities can be a hedge against inflation and other market conditions.
- Pros: Diversification; inflation hedge.
- Cons: Requires understanding of different markets; can be influenced by unpredictable factors like weather.
Real Estate: Investing in property can provide rental income and capital appreciation. It’s considered less liquid but can be a stable investment with tax benefits.
- Pros: Potential for a steady income and long-term growth.
- Cons: High initial capital requirement; involves management and upkeep.
Bonds: Bonds are loans you make to a government or corporation, which they promise to repay with interest. They are typically a lower-risk investment.
- Pros: Stable income through interest payments; lower risk.
- Cons: Lower returns compared to stocks; interest rate sensitivity.
Is Forex Trading Worth Learning?
Overall, my opinion on this is a clear yes. Forex trading has been my primary focus for years, and with consistent returns every year, I don’t see myself moving away from Forex any time soon. Of course, it’s helpful to trade a diverse range of markets, and I encourage every trader I work with to branch out. However, if you’re starting out as a new trader or looking for a different sector to trade, it’s hard to go wrong with the Forex markets.
What’s more, our primary day trading strategy for the European session is built around currency pairs. If you’d like to learn more about how we trade and if we can help you with your trading, you can get started with the join button below. Alternatively, check out our articles on learning to trade different markets, linked at the bottom of this page.
