Is Forex Trading Profitable? – FX Guide
Making money in the foreign exchange market is a highly attractive proposition to both novices and experienced professionals since it is the world’s largest and most profitable market. Because the market is open around the clock, with high leverage and cheap expenses, many forex traders join the market and swiftly quit when they experience losses and setbacks. The forex industry is highly competitive, so the question is: Is Forex trading profitable?
The Forex market has much room for growth in Kenya, and Kenya can become an important player in the industry. At present, many individuals lack basic trade knowledge and are unwilling to learn more. However, young people are generally more critical, open-minded, and fluent in the Forex market when it comes to making financial decisions. Therefore, African nations can achieve success with smart management.
Kenyan Shilling (KES) price analysis in Forex market
As the value of currency pairs fluctuates, forex trading seeks to capitalise on this movement and profit from it. The Kenyan Shilling (KES) and the United States Dollar (USD) are two examples. One dollar is worth 100 shillings. As compared to the USD, the KES does not have the same power. Therefore, we must spend 500,000 KES for 5000 USD to do so.
If the KES increases, we’ll have to shell out 500,000 KES to purchase $5,000 in US dollars. We would then be able to purchase USD at a lower cost in KES. This means that for every USD that you sell, you’ll get more KES in return than you spent for it. What you spend for a product or service less than what you got is known as your revenue.
You must know which currency pair to invest in and research the currency pairings to succeed in the forex market. Kenyans are only one of the roughly 1.3 million Africans who deal in the foreign exchange market.”
Since 2018, the Kenyan Capital Markets Authority has been in charge of regulating online Forex trading. As a result, the CMA’s forex brokers are the only ones you should use to do business for Kenyan FX traders. Moreover, with a CMA licence, these brokers are trustworthy to trade with.
Forex trading barriers to getting more profit
Many reasons make it difficult for traders to get more profit in forex trading. First, all you have to do in forex trading is buy and sell currencies, and that’s all there is to it. It’s not quite as simple as that, however.
There are many options for trading, including many account types, lot sizes, and hundreds of currency pairings. You should discover something that works for you since there is so much variety and so many possibilities.
As any investor will tell you, don’t put all your eggs in one basket. Trading and Forex are other options, and they have the potential to be highly profitable. Changing careers or establishing a second source of income is possible, but it will not be simple.
The Swiss franc’s recent wild swings are an exception, although currency fluctuations may be unpredictable. If the euro moves from 1.20 to 1.10 against the US dollar in a week, this is still less than a 10% change. It’s not uncommon for stocks to rise or fall 20 per cent or more in a single trading day. A big part of forex trading’s attractiveness is the enormous leverage supplied by forex brokers.
A trader who shorts $5,000 worth of euros against the US dollar at 1.20 and then covers the short position at 1.10 will generate a profit of $500 or 8.33 per cent. The profit would be $25,000, or 416.67 per cent if the trader employed the highest leverage of 50:1 permissible in the United States (excluding trading charges).
At 1.20 and with 50:1 leverage, this trader might have lost $25,000 if they had been short euro and exited at 1.10 instead of 1.20. Leverage may be as high as 200:1 in certain foreign countries. InHigherage is the single key risk factor in retail forex trading, and authorities in many countries are taking action against it.
Unbalanced risk-to-reward ratio
When a currency call is right, experienced forex traders can balance their losses with large winnings. In contrast, most retail traders, on the other hand, make minor gains on a lot of positions but hang on to losses for too long, resulting in significant losses. You may potentially suffer a loss greater than the sum of your original investment if you do this.
Incompatibility with a platform or a system
Think about what it would be like to have an enormous amount of money in your account and not have the ability to finish a trade due to some kind of platform malfunction or system breakdown, from a power outage to an Internet overload.
Orders such as stop-losses are also included in this category when the market is very volatile. For example, even before the Swiss franc surged on Jan. 15, 2015, many traders had tight stop-loss orders in place for their short positions. Unfortunately, the result was that all participants rushed to liquidate their short-franc positions, making these measures ineffective.
Information is not available on edge.
When it comes to forex trading banks, the top ones have enormous trading operations tied into the currency world and access information that ordinary traders don’t have access to.
Currency volatility can cause high levels of leverage to drain trading money quickly when currency volatility is extreme. Individual traders sometimes have little time to respond to these developments, which may significantly impact the marketplace.
The OTC market
In contrast to the stock or futures markets, the FX market is neither controlled nor regulated. It is also important to note that forex transactions are not backed by any form of clearing authority, resulting in counterparty risk.
Market manipulation and fraud
Secure investment, which disappeared with more than $1 billion in investor cash in 2014, is an example of a currency market scam.
Some of the world’s most powerful financial institutions have also been engaged in manipulating foreign exchange prices. As of May 2015, five large banks were penalised about $6 billion for manipulating exchange rates between 2007 and 2013, increasing the total penalty for these five institutions to approximately $9 billion.
Is Forex trading a fraud or profitable?
As a “get rich fast” plan, forex trading attracts a large number of traders. However, if you’re an extraordinary currency trader, forex trading may earn you a significant amount of money—but it won’t make you wealthy.
The currency market handles billions of dollars every day, as we’ve already explained. “The most knowledgable” is the crucial term here, and that’s why the most knowledgeable traders are making huge profits.
At the end of the year, 68 per cent of all forex investors record a net loss in their accounts. So another way to look at it is that just one out of every three traders makes reasonable money. And that’s where you want to be.
Do Kenyan traders make a living with the Forex market?
There is no limit to the amount of money you can make in forex trading if you put in the effort, unlike a standard salary. However, the other side of the Forex is that you have no set income, and a wide range of variables influences your profits.
Many traders who lose money shouldn’t discourage you since numerous individuals started with little money and made millions. For example, Chinese trader Chen Linkuy, who began out with only $100, gained $100,000 in a relatively short time.
Numerous comparable examples of forex fortune remain untold. Still, it is possible to locate many individuals who gained anywhere from $1,000 to $10,000 with just a limited amount of money at the beginning of their trading career. In reality, high-income earners like Linkuy (well-known Forex trader) don’t want to talk about their accomplishments publicly for fear of triggering tax audits or disclosing their business strategies.
Is a big investment required to make a big profit in Forex?
Trader earnings are hardly ever expressed in specific dollar figures in the forex market but rather as a percentage of your initial investment. Each trader’s performance is evaluated on a subjective basis, which is reflected in the profit percentages.
One percent profit each day isn’t a lot of money for an unskilled trader, but it may be millions or even billions of dollars for top traders. Earnings are also influenced by your volume, which is the number of lots you trade each day, as well as your leverage.
The danger of your investment grows in direct proportion to the growth or reduction in your earnings due to increasing leverage. On a $10 investment, a high-risk, high-leverage strategy might net you $3 to $15 per day, but that’s a success rate few traders can hope for.
Finally, the profits a trader makes are doubtlessly influenced by the deposit and the leverage they use. You’ll need to fine-tune your ability to forecast the short-term state of the global economy from now on if you want to have any influence on your market predictions. An investment strategy that requires a huge amount of money isn’t enough on its own.
Effects of Forex leverage on profitability
A 100:1 leverage ratio is not uncommon in the foreign exchange industry. In basic terms, this implies that for every $1,000 in your account, you may trade up to $100,000 for traders who wish to increase their access to new markets beyond the quantity of their original investment.
However, if you’re not aware of all of the associated risks, leverage is useless. Long into short, leverage magnifies both the positives and negatives of trading, so it can be great when you’re making money and potentially disastrous when you’re losing money. On the other hand, leverage increases your exposure to risk since it increases the amount of money you have to invest.
Unprofitable Forex trade leveraged
We’ll use an example to demonstrate the dangers of leverage in forex trading. Suppose a trader had $10,000 to trade with, and they were working with a broker who required a 1% margin deposit. Their present study concludes that the USD/EUR is reaching its peak and is likely to collapse during the next several days.
This is where the power of leverage is at work. When traders decide to apply 50 times their real leverage, they will short USD/EUR by $500,000 rather than $10,000.
Profitable leveraged Forex
Using leverage correctly may greatly increase the amount of money you have available for a single transaction. For example, suppose there is a massive shift in the USD/EUR rate from 120 to 110.
Shorting the USD/EUR by $5,000 at 1.20 and then covering their short position when the index hits 1.10 would result in an 8.33 percent profit, or roughly $500. A 50:1 leverage would yield a 416.67 percent return, which would amount to $25,000.
What is the best Forex trading strategy for more profit?
Traders may learn about a wide range of forex trading methods from many sources. However, because there are many different trading methods and strategies to choose from, it is tough to settle on one.
However, a study of experienced traders’ preferred trading methods reveals how you’re most likely to succeed. For novice forex traders, the advice of more experienced colleagues may be a huge assistance.
The forex market is attractive to many traders in Kenya due to its minimal account requirements, round-the-clock trading, and high leverage. Trading forex can be profitable and satisfying, but achieving success can take time and effort. Research, avoiding over-leveraging positions, using smart money management practices, and treating forex trading as a business are some actions traders can take to maximise their profits. The key to maximising your Forex profits on the Kenyan forex market is limiting your exposure, setting tight stop-loss levels, and trading through a reliable forex broker.
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Heinrich is a forex and CFD enthusiast with a passion for writing good informative quality content. He strives to showcase the best forex brokers in Africa. Join him on his Journey!
Content Writer | Market Analyst
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