Forex trading profit

You will have a losing week. One question that comes up a lot is: is forex profitable?

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Is forex trading really profitable and can you do it?

One question that comes up a lot is: is forex profitable?

Many times this question comes from retail traders that are not finding any success with their trading approach. When I say “trading approach”, I don’t just mean their trading strategy.

Your trading approach is much more than a trading strategy and we will cover that later.

The short answer is yes, forex trading is profitable.

The slightly longer answer is yes, trading in the forex market is profitable but chances are you won’t make any money.

How do I know trading forex can be profitable? Because I’ve been swing trading forex since 2008 and make money. In fact, you can take a look at my free forex chart setups that I post every week using technical analysis and then update any trades at the end of the week.

Everything in those chart is for one reason: to teach you how to use a simple approach to trading forex to make profits.

It’s one thing to make money trading and an different thing to keep the profits.

Your biggest job as A forex trader

I’ve mentioned it many times in my trading posts but the number one job you have as a trader, is a risk manager. If you do not understand risk…if you do not manage your trades in the proper way, you will lose.

If you are risking too much per trade to withstand a string of losing trades, you will be out of trading faster than you imagined.

If you continue to move your stops around to avoid taking a loss, you will eventually lose your account. Your broker will be happy because you are probably a retail trader and your broker banks your loss, but you won’t be.

Your second job as a trader is simple: enter trading orders.

If you are trading, you’ve done your homework and are trading a strategy that has a verifiable edge in the market. You have made a trading plan complete with which setups to take, how you will exit, where you will take your loss.

You’ve outlined which currencies you will trade and the style of trading you will be doing. Day trading is popular but swing trading currencies is how I trade the retail market. If I day trade, it is not often, is not forex, and is done in the futures markets with the occasional options trading play.

Your job as a trader is to execute the trading plan when your setups take place. You enter your trading orders, manage your trades, and take your profit and loss the way it is set out in your trading plan.

Without a trading plan, you are doomed to fail.

How long can you trade with profits?

Consistency matters when currency trading and if you are applying the trading plan in a consistent manner, you should be able to reap the rewards of the edge your trading plan gives you.

You will take a loss and sometimes many in a row. You will see your trading account fluctuate and it can be painful to see at times. The expectancy of your trading system is what should keep you glued to the trading plan during the times of an equity curve down swing.

The truth is you will have a losing day.

You will have a losing week.

At times, your month may be at break-even or worse, at a loss.

These are the realities of trading and if you are asking about being profitable over the long run, the answer is yes if you are trading a positive expectancy trading strategy.

One week of loss or even a month of not being profitable does not make for trading failure. It must be expected. You must expect to lose and also to imagine that you have yet to take the biggest loss of your trading career.

You read that right. Think that you have yet to experience the most painful loss of all. Expect that a multiple of risk loss is around the corner.

It will remind you that the biggest trading job you have is trading your emotions for a proper mindset and to protect your trading capital.

What is forex money management?

Forex money management is simply about risk. In short, if you take big risks, you can make a lot of money in short period of time but the bad side of that is that a few bad high risk trades and you lose a lot. Wins and losses come in a random distribution.

You never know if that next trading will be a winner.

When you trade a lot, over trader, that’s bad forex money management. When take a lot of risk in a trade, that’s bad forex money management.

Learning forex money management is the easiest thing. But doing it, applying it, sticking to it when everything else doesn’t seem to be working is really hard…and all it comes down to is mindset.

What is A good mindset?

There are many books written about the trading mindset but before I list a few – a great mindset is useless if you are trading a flawed trading strategy.

You understand that you are not worried about the day to day trading account fluctuations because you are focuses on the long term.

When a trading loss or trading profit does not bother you, but you see it as part of the whole process to keep growing your account.

You know that risk management can help you last a very long time in trading forex and failure to follow it is the fastest way to part with your money.

You understand the negative impacts of greed and fear and learn to control it.

Trading the forex market is a business and like any business, you have to approach it with a professional approach and like most companies, have a “trading resolution”, something you abide by at all times.

The four mindset points above can be a great place to explore.

Break out a pen and paper and jot down those four ideas about mindset. Expand on them and ask what they mean to you.

One word to be A successful currency trader

If I had to use one word to describe the best trader, I would use the word consistency.

By using that one word, I am assuming that everything from your trading plan to the forex broker you will use has been detailed.

The job you have trading currencies is to implement that trading plan. How? With consistency. Traders that do everything in a consistent manner are sticking to a proven edge.

More importantly, by being consistent, when a trader is not seeing their profitability increase or they are seeing their profit drop, they can zero on each step they take to find the issue.

It is difficult to find where a problem is if you are constantly switching gears.

This is why I never think it is a good idea to take trading signals from people you don’t know. Too much trust goes into the word of someone else – someone who is not responsible for your trading account. How can you fix a strategy if you don’t know how the trading signals are generated?

In the end, I believe everyone has the chance to become successful and profitable when trading. The issue is if they will take the steps required to do so.

I also believe that most won’t do what is required and will continue to look for the easy way or the “secret sauce”.

There is no magic. It’s called hard work on the right things. I hope my trading blog and the setups I post every week are helping you gain some ground in your quest to be a profitable trader.

Calculating profits and losses of your currency trades

Currency trading offers a challenging and profitable opportunity for well-educated investors. However, it is also a risky market, and traders must always remain alert to their positions—after all, the success or failure is measured in terms of the profits and losses (P&L) on their trades.

It is important for traders to have a clear understanding of their P&L because it directly affects the margin balance they have in their trading account. If prices move against you, your margin balance reduces, and you will have less money available for trading.

Realized and unrealized profit and loss

All your foreign exchange trades will be marked to market in real-time. The mark-to-market calculation shows the unrealized P&L in your trades. The term "unrealized," here, means that the trades are still open and can be closed by you any time.

The mark-to-market value is the value at which you can close your trade at that moment. If you have a long position, the mark-to-market calculation typically is the price at which you can sell. In the case of a short position, it is the price at which you can buy to close the position.

Until a position is closed, the P&L will remain unrealized. The profit or loss is realized (realized P&L) when you close out a trade position. In case of a profit, the margin balance is increased, and in case of a loss, it is decreased.

The total margin balance in your account will always be equal to the sum of the initial margin deposit, realized P&L and unrealized P&L. Since the unrealized P&L is marked to market, it keeps fluctuating, as the prices of your investments change constantly. Due to this, the margin balance also keeps changing constantly.

Calculating profit and loss

The actual calculation of profit and loss in a position is quite straightforward. To calculate the P&L of a position, what you need is the position size and the number of pips the price has moved. The actual profit or loss will be equal to the position size multiplied by the pip movement.

Assume that you have a 100,000 GBP/USD position currently trading at 1.3147. If the prices move from GBP/USD 1.3147 to 1.3162, then they jumped 15 pips. For a 100,000 GBP/USD position, the 15-pips movement equates to $150 (100,000 x .0015).

To determine if it's a profit or loss, we need to know whether we were long or short for each trade.

Long position: in the case of a long position, if the prices move up, it will be a profit, and if the prices move down it will be a loss. In our earlier example, if the position is long GBP/USD, then it would be a $150 profit. Alternatively, if the prices had moved down from GBP/USD 1.3147 to 1.3127, then it will be a $200 loss (100,000 x -0.0020).

Short position: in the case of a short position, if the prices move up, it will be a loss, and if the prices move down it will be a profit. In the same example, if we had a short GBP/USD position and the prices moved up by 15 pips, it would be a loss of $150. If the prices moved down by 20 pips, it would be a $200 profit.

The following table summarizes the calculation of P&L:

100,000 GBP/USD	long position	short position
prices up 15 pips	profit $150	loss $150
prices down 20 pips	loss $200	profit $200

Another aspect of the P&L is the currency in which it is denominated. In our example, the P&L was denominated in dollars. However, this may not always be the case.

In our example, the GBP/USD is quoted in terms of the number of USD per GBP. GBP is the base currency and USD is the quote currency. At a rate of GBP/USD 1.3147, it costs USD 1.3147 to buy one GBP. So, if the price fluctuates, it will be a change in the dollar value. For a standard lot, each pip will be worth $10, and the profit and loss will be in USD. As a general rule, the P&L will be denominated in the quote currency, so if it's not in USD, you will have to convert it into USD for margin calculations.

Consider you have a 100,000 short position on USD/CHF. In this case, your P&L will be denominated in swiss francs. The current rate is roughly 0.9970. For a standard lot, each pip will be worth CHF 10. If the price has moved down by 10 pips to 0.9960, it will be a profit of CHF 100. To convert this P&L into USD, you will have to divide the P&L by the USD/CHF rate, i.E., CHF 100 ÷ 0.9960, which will be $100.4016.

Once we have the P&L values, these can easily be used to calculate the margin balance available in the trading account. Margin calculations are typically in USD.

The bottom line

You will not have to perform these calculations manually, because all brokerage accounts automatically calculate the P&L for all your trades. However, it is important that you understand these calculations, as you will have to calculate your P&L and margin requirements while structuring your trade—even before you actually enter the trade.

Depending on how much leverage your trading account offers, you can calculate the margin required to hold a position. For example, if you have a leverage of 100:1, you will require a margin of $1,000 to open a standard lot position of 100,000 USD/CHF. Having a clear understanding of how much money is at stake in each trade will help you manage your risk effectively.

Can you make money trading forex?

Can you make money trading trading forex? This question has been debated for quite some time. This is due to the fact that many investors haven't had the success trading forex they had imagined, and their experiences have subsequently cast a shadow of doubt on its viability as an investment choice.

However, for a market that trades around $5 trillion daily in volume, it stands to reason that there are traders profiting from forex, otherwise, the forex market would have become unpopular and faded out. The question to ask then, is not if forex is profitable, but how to trade forex profitably and how to be consistently profitable in forex.

Like any other type of investment, forex trading has its inherent risks and potential for profitability or loss, and knowing how to mitigate these risks goes a long way in determining your own forex trading profit or loss.

Sometimes, people get carried away by the success of someone else who achieved a forex trading profit, and then throw their own money into the market, without first finding out how the profit came about.

In order to have any chance of making a profit in forex, you first need to understand the market and the factors that are important for success. Is forex profitable? It certainly can be. Below are three important factors to consider if you want to trade forex profitably:

Can you make money trading forex?

Forex is undoubtedly a high-risk market. Whether you can make money swing trading forex, day trading forex or with long term investments, the risk is high and so is the potential for forex profit.

The most important question you should ask yourself is whether you have the appetite for risk. Not all trades will result in a profit and you must be prepared for losses. Are you ready to keep going, even after a string of losses? Even the most successful traders make losses from time to time, so, if you don't think you can handle it, forex probably isn't for you.

If you do decide to trade forex, you should consider using risk management in your strategy. This helps to minimise the risks associated with trading and can help you make money trading forex.

Invest wisely

Get a good understanding of the basics of how the market works, and if there is anything you are uncomfortable with, don't trade it. This applies as much to forex as it applies to any other market. If you feel you've got what it takes to trade forex, go for it – but a word of caution here: trade with risk capital only (money that you can afford to lose without it affecting your living standards).

Also, it would be wise to ensure that you have other types of investments going. Ideally, forex shouldn't exceed more than 20% of your entire investment portfolio. This is known as portfolio diversification, and is widely used by many successful professional traders.

If you want to know if you can get rich by trading forex, I can tell you that it is possible, but only few traders manage to pull it off and one integral principle that they use is trading wisely and never risking more than they can afford to lose. In this way, you can minimize risk and build earnings slowly, but steadily.

Have a trading strategy

Trading forex profitably requires that you employ a definite strategy. There is no right or wrong way to trade, rather what is important, is for you to determine the one that you will adopt. Sometimes, you'll find out that a trading strategy will work well for a certain currency pair in a given market, while another strategy will work for that same pair in another market, or a different set of market conditions.

Trading forex profitably demands a high level of discipline, and a strategy helps you to stay focused and avoid emotional trading, which has proven to be the downfall of many traders. Evolving your own strategy comes with experience. Beginners are advised to trade on a demo account for a while to practice and to understand how the market works. Once you have the right attitude, good risk management, and a strategy that works for you, you will be closer to making profits in forex.

A good place to start with forex trading is the forex 101 online trading course from admiral markets. If you're completely new to forex trading, you can get up to speed in just 9 online lessons! Click the banner below to register for FREE!

How to profit from forex trading

Answering the question, “can you make money trading forex", is rather simple. To trade forex and achieve profits with this, you need to buy low and sell high. This is one of the best things about the forex market, as you can easily not only purchase the assets, but sell them without owning them.

Of course, if profitable forex trading was that easy, there would be millions of online traders making large sums of money every day. In fact, the situation is quite the opposite. Most forex traders actually lose money, and it is quite a challenge to start profiting with forex.

Featured below are the basic principles of forex trading, risk management, and trading psychology. Following these principles does not necessarily guarantee that you will achieve profits in this highly volatile and enormously large market, but it can help. Without knowing the basics, it will be hard for you to profit in forex. Let's examine these key features of profitable forex trading:

A stop-loss should always be used

No matter what your trading strategy is, you should always have your stop-loss set. What is a stop-loss? This is a trading parameter that enables you to define the closing price of your trade, and the trade will then be closed at this level automatically. In other words, once you have placed a stop-loss, you can rest safe in the knowledge that you will not lose more than you expect.

This may not necessarily be applicable every time, as sometimes the market behaves erratically, and you can see some price gaps. When a price gap happens, your stop-loss will not be executed at your predetermined level, but will instead be executed at the next available price– this may result in what is known as slippage.

Keep your emotions aside

This may sound simple, but it is extremely important. Emotions are a trader's worst enemy. Some people try to comprehend trading as a game, where they have to beat the market, and once they start to lose this game, their nerves start to let them down. First of all, trading is not a game, and you should never treat it like one. Forex trading is an exciting activity that is a mix of analysis and discipline.

Here are the key points to remember:

Never get angry at the market

Never be worried about your losing positions

Instead, you should just understand them, rely on your analysis, and follow the rules you have established for yourself. This is the ultimate key in how to profit from forex.

Emotions can spoil every trader's experience, and this is why it is vital to keep them separate from your trading. If you feel down, do not trade. Equally, if you feel too happy or excited, you should also avoid trading. Feeling too confident about your trades can result in big losses.

However, this is easier said than done because emotions make us human. Let's hear from jens klatt, an experienced trader, about his expert opinion on mastering your trading emotions in the free webinar below.

Stay tuned in with the current market issues

How can you be profitable in forex trading? Staying up-to-date with the latest news releases is definitely one way. A lot of market moves happen due to either news and announcements, or due to the expectations of news and announcements. This is referred to as fundamental trading. What you have to be sure about is that even if you are a technical trader, you should still be paying sufficient attention to fundamental events, as such events are a key driver of market moves.

In other words, if you have a reliable trading strategy, and all of the technical indicators point to a long trade, make sure to check the forex calendar and see if your trade is in line with the current news. Even if your technical setup works like a clock, fundamental news can be a game-changer.

How much do professional forex traders make?

Traders who are work for a firm can earn any salary in a very wide range. It depends on the specific trader's job title, the firm they work in and even the country and city they are in.

Let's have a look. A forex trader salary in the US, based on information from indeed, is on average $98,652 per year plus $25,000 in commissions. However, the biggest salary they reported was $196,917, which was at the firm, citi trader.

Information gathered from payscale stated that equities traders made a salary of $80,935 plus bonuses of $14,916, a commission amounting to $21,000 and profit sharing options at around $6,000. They reported base salaries ranging from $47,000 up to $160,000.

Source: payscale.Com, equities trader salary

Glassdoor also reported a similar amount, with a salary being, on average, $91,642 with an average of $32,599 in cash compensation.

Source: glassdoor.Com, average trader salary

Now, what is the situation across the pond? Can you make money trading forex in the UK?

Information from glassdoor shows that the average salary of a forex trader in london is £65,621. For comparison, at the current exchange rate, that amounts to around USD86,000. So, about $10,000 lower than the average salary in the US.

Source: glassdoor, london trader salary

If you are interested in a full, in depth analysis of what a forex trader salary is, depending on their job title, experience and location, have a look at this very comprehensive article, instead of going to reddit and asking if you can make money from forex trading.

Is automated forex trading profitable?

Perhaps you've heard about automated trading (eas), and you're curious: why not use automated trading in the forex market? Surely, as you search for an automated trading bot you'll find many eas that promote 100% daily returns.

Occasionally, these eas can be somewhat profitable. Eas occasionally cash in as they focus on technical-analysis based aspects of forex trading. However, many of these bots scalp the market, which means they set a wide stop-loss and cash in on small profits, which can lead to devastating losses for a trading account during a losing streak.

The biggest disadvantage of automated trading systems in the forex market is that there are a lot of scams. The people that consistently make profits with eas are the people developing them.

To earn a profit trading forex, you are best-off learning some tried and tested strategies and developing your own skill with them over time. Follow the rules provided above and, with some patience and dedication, you can get better at trading and mitigating your losses as a forex trader.

Conclusion

There is no golden rule here. Many people are looking for a direct answer to the question of how to gain profit in forex?, and most of them end up using forex signal providers. This is an easy way to start trading forex, yet it's doubtful as to whether it can be a profitable one, especially in the long run. The main thing to remember here is that to be profitable in the forex market, you should mainly have more winning trades than losing ones.

This, of course, is only applicable if your take-profit level is equal to the level of your stop-loss. To put this message into other words and make them fit more easily into your trading strategy, we can say that to be profitable in forex, you need to make more correct moves than incorrect ones.

How profitable is forex trading?

This generally depends on your trading strategy, and on the risks you are willing or are able to take. Forex trading is performed on the margin – this means that the size of your trades can be a lot larger than the size of your deposit. In other words, you can trade much more than you have. This can potentially lead to very high profits from forex. Unfortunately, the same also applies to your losses.

Generally, profits and losses are almost unlimited in the forex market. Mostly, it depends on your risk appetite, your trading strategy, and your level of understanding. Start trading for skill instead of a profit, and in time, the profits should come with the skill. If you would like to learn more about profitable trading in the context of forex trading strategies, why not check out our article on the most profitable forex trading system?

To start trading forex today, click the banner below and open your live trading account!

About admiral markets

Admiral markets is a multi-award winning, globally regulated forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: metatrader 4 and metatrader 5. Start trading today!

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Calculating profits and losses of your currency trades

Realized and unrealized profit and loss

Calculating profit and loss

To determine if it's a profit or loss, we need to know whether we were long or short for each trade.

The following table summarizes the calculation of P&L:

100,000 GBP/USD	long position	short position
prices up 15 pips	profit $150	loss $150
prices down 20 pips	loss $200	profit $200

Another aspect of the P&L is the currency in which it is denominated. In our example, the P&L was denominated in dollars. However, this may not always be the case.

Once we have the P&L values, these can easily be used to calculate the margin balance available in the trading account. Margin calculations are typically in USD.

The bottom line

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Forex trading: A beginner's guide

Forex is a portmanteau of foreign currency and exchange. Foreign exchange is the process of changing one currency into another currency for a variety of reasons, usually for commerce, trading, or tourism. According to a recent triennial report from the bank for international settlements (a global bank for national central banks), the average was more than $5.1 trillion in daily forex trading volume.

Key takeaways

The foreign exchange (also known as FX or forex) market is a global marketplace for exchanging national currencies against one another.

Because of the worldwide reach of trade, commerce, and finance, forex markets tend to be the largest and most liquid asset markets in the world.

Currencies trade against each other as exchange rate pairs. For example, EUR/USD.

Forex markets exist as spot (cash) markets as well as derivatives markets offering forwards, futures, options, and currency swaps.

Market participants use forex to hedge against international currency and interest rate risk, to speculate on geopolitical events, and to diversify portfolios, among several other reasons.

What is the forex market?

The foreign exchange market is where currencies are traded. Currencies are important to most people around the world, whether they realize it or not, because currencies need to be exchanged in order to conduct foreign trade and business. If you are living in the U.S. And want to buy cheese from france, either you or the company that you buy the cheese from has to pay the french for the cheese in euros (EUR). This means that the U.S. Importer would have to exchange the equivalent value of U.S. Dollars (USD) into euros. The same goes for traveling. A french tourist in egypt can't pay in euros to see the pyramids because it's not the locally accepted currency. As such, the tourist has to exchange the euros for the local currency, in this case the egyptian pound, at the current exchange rate.

One unique aspect of this international market is that there is no central marketplace for foreign exchange. Rather, currency trading is conducted electronically over-the-counter (OTC), which means that all transactions occur via computer networks between traders around the world, rather than on one centralized exchange. The market is open 24 hours a day, five and a half days a week, and currencies are traded worldwide in the major financial centers of london, new york, tokyo, zurich, frankfurt, hong kong, singapore, paris and sydney—across almost every time zone. This means that when the trading day in the U.S. Ends, the forex market begins anew in tokyo and hong kong. As such, the forex market can be extremely active any time of the day, with price quotes changing constantly.

A brief history of forex

Unlike stock markets, which can trace their roots back centuries, the forex market as we understand it today is a truly new market. Of course, in its most basic sense—that of people converting one currency to another for financial advantage—forex has been around since nations began minting currencies. But the modern forex markets are a modern invention. After the accord at bretton woods in 1971, more major currencies were allowed to float freely against one another. The values of individual currencies vary, which has given rise to the need for foreign exchange services and trading.

Commercial and investment banks conduct most of the trading in the forex markets on behalf of their clients, but there are also speculative opportunities for trading one currency against another for professional and individual investors.

Spot market and the forwards & futures markets

There are actually three ways that institutions, corporations and individuals trade forex: the spot market, the forwards market, and the futures market. Forex trading in the spot market has always been the largest market because it is the "underlying" real asset that the forwards and futures markets are based on. In the past, the futures market was the most popular venue for traders because it was available to individual investors for a longer period of time. However, with the advent of electronic trading and numerous forex brokers, the spot market has witnessed a huge surge in activity and now surpasses the futures market as the preferred trading market for individual investors and speculators. When people refer to the forex market, they usually are referring to the spot market. The forwards and futures markets tend to be more popular with companies that need to hedge their foreign exchange risks out to a specific date in the future.

More specifically, the spot market is where currencies are bought and sold according to the current price. That price, determined by supply and demand, is a reflection of many things, including current interest rates, economic performance, sentiment towards ongoing political situations (both locally and internationally), as well as the perception of the future performance of one currency against another. When a deal is finalized, this is known as a "spot deal." it is a bilateral transaction by which one party delivers an agreed-upon currency amount to the counter party and receives a specified amount of another currency at the agreed-upon exchange rate value. After a position is closed, the settlement is in cash. Although the spot market is commonly known as one that deals with transactions in the present (rather than the future), these trades actually take two days for settlement.

Unlike the spot market, the forwards and futures markets do not trade actual currencies. Instead they deal in contracts that represent claims to a certain currency type, a specific price per unit and a future date for settlement.

In the forwards market, contracts are bought and sold OTC between two parties, who determine the terms of the agreement between themselves.

In the futures market, futures contracts are bought and sold based upon a standard size and settlement date on public commodities markets, such as the chicago mercantile exchange. In the U.S., the national futures association regulates the futures market. Futures contracts have specific details, including the number of units being traded, delivery and settlement dates, and minimum price increments that cannot be customized. The exchange acts as a counterpart to the trader, providing clearance and settlement.

Both types of contracts are binding and are typically settled for cash at the exchange in question upon expiry, although contracts can also be bought and sold before they expire. The forwards and futures markets can offer protection against risk when trading currencies. Usually, big international corporations use these markets in order to hedge against future exchange rate fluctuations, but speculators take part in these markets as well.

Note that you'll often see the terms: FX, forex, foreign-exchange market, and currency market. These terms are synonymous and all refer to the forex market.

Forex for hedging

Companies doing business in foreign countries are at risk due to fluctuations in currency values when they buy or sell goods and services outside of their domestic market. Foreign exchange markets provide a way to hedge currency risk by fixing a rate at which the transaction will be completed.

To accomplish this, a trader can buy or sell currencies in the forward or swap markets in advance, which locks in an exchange rate. For example, imagine that a company plans to sell U.S.-made blenders in europe when the exchange rate between the euro and the dollar (EUR/USD) is €1 to $1 at parity.

The blender costs $100 to manufacture, and the U.S. Firm plans to sell it for €150—which is competitive with other blenders that were made in europe. If this plan is successful, the company will make $50 in profit because the EUR/USD exchange rate is even. Unfortunately, the USD begins to rise in value versus the euro until the EUR/USD exchange rate is 0.80, which means it now costs $0.80 to buy €1.00.

The problem the company faces is that while it still costs $100 to make the blender, the company can only sell the product at the competitive price of €150, which when translated back into dollars is only $120 (€150 X 0.80 = $120). A stronger dollar resulted in a much smaller profit than expected.

The blender company could have reduced this risk by shorting the euro and buying the USD when they were at parity. That way, if the dollar rose in value, the profits from the trade would offset the reduced profit from the sale of blenders. If the USD fell in value, the more favorable exchange rate will increase the profit from the sale of blenders, which offsets the losses in the trade.

Hedging of this kind can be done in the currency futures market. The advantage for the trader is that futures contracts are standardized and cleared by a central authority. However, currency futures may be less liquid than the forward markets, which are decentralized and exist within the interbank system throughout the world.

Forex for speculation

Factors like interest rates, trade flows, tourism, economic strength, and geopolitical risk affect supply and demand for currencies, which creates daily volatility in the forex markets. An opportunity exists to profit from changes that may increase or reduce one currency's value compared to another. A forecast that one currency will weaken is essentially the same as assuming that the other currency in the pair will strengthen because currencies are traded as pairs.

Imagine a trader who expects interest rates to rise in the U.S. Compared to australia while the exchange rate between the two currencies (AUD/USD) is 0.71 (it takes $0.71 USD to buy $1.00 AUD). The trader believes higher interest rates in the U.S. Will increase demand for USD, and therefore the AUD/USD exchange rate will fall because it will require fewer, stronger USD to buy an AUD.

Assume that the trader is correct and interest rates rise, which decreases the AUD/USD exchange rate to 0.50. This means that it requires $0.50 USD to buy $1.00 AUD. If the investor had shorted the AUD and went long the USD, he or she would have profited from the change in value.

Currency as an asset class

There are two distinct features to currencies as an asset class:

You can earn the interest rate differential between two currencies.

You can profit from changes in the exchange rate.

An investor can profit from the difference between two interest rates in two different economies by buying the currency with the higher interest rate and shorting the currency with the lower interest rate. Prior to the 2008 financial crisis, it was very common to short the japanese yen (JPY) and buy british pounds (GBP) because the interest rate differential was very large. This strategy is sometimes referred to as a "carry trade."

Why we can trade currencies

Currency trading was very difficult for individual investors prior to the internet. Most currency traders were large multinational corporations, hedge funds or high-net-worth individuals because forex trading required a lot of capital. With help from the internet, a retail market aimed at individual traders has emerged, providing easy access to the foreign exchange markets, either through the banks themselves or brokers making a secondary market. Most online brokers or dealers offer very high leverage to individual traders who can control a large trade with a small account balance.

Forex trading: A beginner’s guide

Forex trading risks

Trading currencies can be risky and complex. The interbank market has varying degrees of regulation, and forex instruments are not standardized. In some parts of the world, forex trading is almost completely unregulated.

The interbank market is made up of banks trading with each other around the world. The banks themselves have to determine and accept sovereign risk and credit risk, and they have established internal processes to keep themselves as safe as possible. Regulations like this are industry-imposed for the protection of each participating bank.

Since the market is made by each of the participating banks providing offers and bids for a particular currency, the market pricing mechanism is based on supply and demand. Because there are such large trade flows within the system, it is difficult for rogue traders to influence the price of a currency. This system helps create transparency in the market for investors with access to interbank dealing.

Most small retail traders trade with relatively small and semi-unregulated forex brokers/dealers, which can (and sometimes do) re-quote prices and even trade against their own customers. Depending on where the dealer exists, there may be some government and industry regulation, but those safeguards are inconsistent around the globe.

Most retail investors should spend time investigating a forex dealer to find out whether it is regulated in the U.S. Or the U.K. (dealers in the U.S. And U.K. Have more oversight) or in a country with lax rules and oversight. It is also a good idea to find out what kind of account protections are available in case of a market crisis, or if a dealer becomes insolvent.

Pros and challenges of trading forex

Pro: the forex markets are the largest in terms of daily trading volume in the world and therefore offer the most liquidity. this makes it easy to enter and exit a position in any of the major currencies within a fraction of a second for a small spread in most market conditions.

Challenge: banks, brokers, and dealers in the forex markets allow a high amount of leverage, which means that traders can control large positions with relatively little money of their own. Leverage in the range of 100:1 is a high ratio but not uncommon in forex. A trader must understand the use of leverage and the risks that leverage introduces in an account. Extreme amounts of leverage have led to many dealers becoming insolvent unexpectedly.

Pro: the forex market is traded 24 hours a day, five days a week—starting each day in australia and ending in new york. The major centers are sydney, hong kong, singapore, tokyo, frankfurt, paris, london, and new york.

Challenge: trading currencies productively requires an understanding of economic fundamentals and indicators. A currency trader needs to have a big-picture understanding of the economies of the various countries and their inter-connectedness to grasp the fundamentals that drive currency values.

The bottom line

For traders—especially those with limited funds—day trading or swing trading in small amounts is easier in the forex market than other markets. For those with longer-term horizons and larger funds, long-term fundamentals-based trading or a carry trade can be profitable. A focus on understanding the macroeconomic fundamentals driving currency values and experience with technical analysis may help new forex traders to become more profitable.

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Menghitung profit dan loss dengan trading forex calculator

Semidal ada trader yang tak bisa menghitung atau melakukan kalkulasi sederhana terkait potensi profit dan loss yang didapat dari trading, itu berarti trader tersebut masih belum layak. Trading forex calculator bisa membantu kalkulasi tersebut tanpa repot.

Profit dan loss kadang sangat menipu. Dalam artian, apa yang dipikirkan trader belum tentu apa yang didapat trader di akhir trading. Trading forex calculator bisa membantu trader memperjelas apa yang bakal didapat trader, baik itu profit atau loss.

Haruskah memakai pip untuk menghitung profit dan loss?

Trader pada kebanyakan seringnya menghitung profit dan loss dalam pip. Tapi satu isu terbesar dari penerapan pip yaitu kadang jumlahnya bisa menipu dan belum pasti bisa memberi gambaran sebenarnya berapa jumlah profit yang bisa didapat trader.

Sebagai trader, harus dipahami bahwa pip tidak benar-benar bisa mendefinisikan jumlah profit dan loss dari trading meski trader sudah menghitung secara cermat. Trading forex calculator memang bisa membantu dalam melakukan perhitungan pip jika dipadu dengan berbagai trading forex charts, itu saja!

Tapi jika dikonversi ke dalam profit misalnya, hasilnya tak akan sama dengan hitung-hitungan yang sudah dibuat. Pada akhirnya, pip akan dikonversi ke dalam profit dan profit selanjutnya akan dikonversi lagi menjadi uang yang nantinya berubah status menjadi pendapatan trader.

Beberapa trader juga menghitung profit dan loss memakai tick, meski sistem ini juga masih mempunyai sejumlah kekurangan dan bahkan kadang tak lebih baik dari pip. Walau demikian, jenis perhitungan apa yang akan dipakai semua terserah pada trader, tergantung tingkat kenyamanannya.

Dengan pip, hasil kalkulasi kadang menunjukkan sisi positif walaupun pada akhirnya trader tetap bisa kehilangan uang. Satu analogi, pernahkah menyadari kenapa banyak penjual sinyal trading yang menjual sistem buatannya menunjukkan profit yang dihasilkan dalam pip bukan memakai dolar langsung?

Pada dasarnya, pip tidak menunjukkan bahwa trader atau sistem trading menghasilkan profit sebenarnya. Trader bisa saja mendapat banyak pip meski kehilangan banyak uang. Di sisi sebaliknya, trader bisa tetap menghasilkan profit meski hitungan pip menunjukkan sisi negatif.

Inilah kunci yang harus dipahami tiap trader, bahwa pip bukan segalanya dalam trading. Dengan alasan tersebut, akan jauh lebih baik kalau trader membuat kalkulasi profit dan loss dalam bentuk uang, bukan pip. Tapi langkah pertama yang harus dilakukan trader yaitu menghitung position sizing lebih dulu.

Kenapa position sizing sangat penting?

Semisal trader masuk market memakai position sizing yang sama terlepas dari poin stop-loss dan pair yang dipilih dalam market, maka trader sebenarnya mengambil risiko lebih besar atau lebih kecil dibanding trader menghitung tiap trading dengan uang (dolar).

Memakai jumlah position sizing yang sama pada tiap trading bukan berarti trader mengambil risiko atau mendapat profit yang sama dari trading sebelumnya. Faktanya, inilah kesalahan yang sering dilakukan trader, terlebih untuk para pemula.

Market bisa berubah kapan saja, dan jika menggunakan position sizing yang sama, ada kemungkinan tersapu market lebih cepat atau lebih lama. Semisal mempunyai stop 20 pip pada chart 1 jam dan stop 200 pip pada chart mingguan, maka trading loss dari chart mingguan berarti lebih besar 10 kali lipat ukurannya dari chart durasi 1 jam (jika menggunakan pair yang sama).

Pair dan market bisa merubah jumlah risiko dengan tingkat yang berbeda. Inilah alasan lain kenapa sebaiknya menghitung profit dan loss memakai dolar, bukan dengan pip. Dalam hal ini, ukuran trading merupakan faktor penting yang akan memengaruhi rencana dan manajemen risiko.

Semisal ukuran trading terlalu kecil atau terlalu besar, maka semua analisa market akan berakhir seperti sia-sia. Untuk alasan ini, trader harus selalu disiplin untuk memakai prosentase risiko yang sama untuk tiap trading. Satu-satunya yang harus dirubah saat trading yaitu posisi stop-loss.

Menentukan seberapa banyak modal yang akan dipakai untuk trading juga akan bergantung pada posisi stop dan kondisi market secara umum. Tak peduli seberapa besar posisi stop dalam pip, trader tetap akan terkena prosentase risiko yang sama untuk tiap trading.

Bagaimana cara menghitung posisiton sizing dengan benar?

Satu metode umum yang umum dipakai untuk menghitung risiko per trading yaitu dengan memakai prosentase. Satu contoh, trader seringnya memakai 1%-3% untuk tiap trading. Pada trading pertama trader membuka posisi dengan stop 30 pip lalu trading kedua dengan 150 pip.

Pada dua trading tersebut, trader pada dasarnya mengambil risiko yang sama, yaitu 3%. Jumlah modal yang digunakan untuk masuk trading akan berbeda, tapi prosentase risikonya tetap sama. Semisal memenangi dua trading tersebut, tentu nilai akun akan meningkat.

Disaat yang sama, nilai 3% jelas akan naik mengikuti jumlah keseluruhan modal. Sebagai contoh, semisal memulai trading dengan modal USD 1000 dengan prosentase risiko 3%, maka hasilnya USD 30. Trader lalu menghasilkan profit USD 100 sehingga total akun menjadi USD 1100.

Jika pada trading selanjutnya risiko yang diambil tetap 3%, maka hasilnya yaitu USD 33. Pada sisi sebaliknya, jika trading pertama berakhir kalah maka trader kehilangan USD 30 (3%) sehingga akun akan menjadi USD 970. Pada trading kedua risikonya akan turun sedikit menjadi USD 29.

Dengan demikian, pada prosentase yang sama trader bisa mendapat hasil berbeda, baik itu kalah atau menang. Dalam kata lain, menghitung dengan uang dolar akan memberi hasil lebih pasti dan akurat daripada dengan prosentase atau pip.

Bagaimana cara menghitung ukuran trading?

Cara termudah dan tercepat untuk menghitung ukuran trading, termasuk profit dan loss, yaitu dengan kalkulator. Trading forex calculator saat ini sudah banyak tersedia secara online dan bisa diakses dengan gratis. Tinggal isi beberapa kolom yang dimaksud lalu hasilnya akan keluar secara otomatis.

Tapi sebelum mengisi trading forex calculator, trader harus paham tentang pecahan dasar, saldo akun forex saat ini, berapa banyak prosentase risiko yang ingin diambil, seberapa besar posisi stop-loss, dan pair apa yang dipilih untuk ditransaksikan.

Kolom lain yang harus diisi trader biasanya terkait nilai tukar saat ini. Pada trading forex calculator, barangkali inilah bagian terpenting yang harus diisi trader. Semisal angka yang dimasukkan bukan nilai tukar pair yang ingin ditransaksikan, maka hasilnya sudah pasti salah.

Untuk menghitung profit dan loss serta position sizing, penting bagi trader agar menghitungnya dalam format uang, bukan pip. Pip memang bisa memberi bantuan solid pada trader, tapi pada saat yang sama juga bisa menipu trader karena tidak menunjukkan hasil pasti terkait hitungan profit dan loss.

Sebagai trader, sangat krusial untuk mengetahui hitungan profit dan loss secara pasti agar mendapat gambaran penuh terkait trading yang akan diambil. Trading forex calculator akan sangat membantu dalam hal ini, terutama untuk mengetahui peluang profit dan menjauhkan potensi risiko trading.

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So, let's see, what we have: many ask: is forex profitable? From personal experience, I can say that yes, forex is profitable. But it comes with A big "BUT". Anyone can profit in forex. At forex trading profit