Forex Trading Career: Pros and Cons (2024)

Often perceived as an easy moneymaking career, forex trading is actually quite difficult, though highly engaging. The foreign exchange market is the largest and most liquid market in the world, but trading currencies is very different from trading stocks or commodities.

Due to its high liquidity, 24/7 schedule, and easy accessibility, forex trading has emerged as a popular career, especially for people with afinancial background. Being your own boss with the comforts of making money using your laptop/mobile is enough motivation for both young graduates and experienced professionals to consider forex trading as a career.

However,forex trading has its disadvantages, such as high risk and volatility.

Key Takeaways

  • Forex is the largest and most liquid market in the world. Trillions of dollars worth are exchanged every day.
  • A career as a forex trader can be lucrative, flexible, and highly engaging.
  • There is a steep learning curve and forex traders face high risks, leverage, and volatility.
  • Perseverance, continuous learning, efficient capital management techniques, the ability to take risks, and a robust trading plan are needed to be a successful forex trader.

Pros of a Forex Trading Career

There are several advantages that a career as a forex trader, also known as a foreign exchange trader, offers. They include:

Low Costs

Forex trading can havevery low costs (brokerage and commissions). There are no commissions in a real sense–most forex brokers make profits from the spreads betweenforex currencies. One does not have to worry about including separate brokerage charges, eliminating overhead costs. Compare that to equity or other securities trading where the brokerage structure varies widely and a trader must take such fees into account.

Suits Varying Trading Styles

The forex markets run all day, enabling trades at one’s convenience, which is very advantageous to short-term traders who tend to take positions over short durations (say a few minutes to a few hours). Few traders make trades during complete off-hours.

For example, Australia’s daytime is the nighttime for the East Coast of the U.S. A U.S.-based trader may trade AUD during U.S. business hours, as little development is expected and prices are in a stable range during such off-hours for AUD. Such traders adopt high-volume, low-profit trading strategies, as they have little profit margins due to a lack of developments specific to forex markets. Instead, they attempt to make profits on relatively stable low volatility duration and compensate with high volume trades.Traders can also take long-term positions, which can last from days to several weeks. Forex trading is very accommodating in this way.

High Liquidity

Compared with any other financial market, the forex market has the largest notional value of daily trading. This provides the highest level of liquidity, which means even large orders of currency trades are easily filled efficiently without any large price deviations. This eliminates the possibility of price manipulation and price anomalies, thereby enabling tighter spreads that lead to more efficient pricing.

Traders don't need to worry about the high volatility during opening and closing hours, or stagnant price ranges during the afternoons, which are trademarks of equity markets. Unless major events are expected, one can observe similar price patterns (of high, mid, or low volatility) throughout the non-stop trading.

No Central Exchange or Regulator

Being an over-the-counter market operating across the globe, there is no central exchange or regulator for the forex market. Various countries’ central banks occasionally intervene as needed but these are rare events, occurring under extreme conditions. Most such developments are already perceived and priced into the market. Such a decentralized and (relatively) deregulated market helps avoid any sudden surprises. Compare that to equity markets, where a company can suddenly declare a dividend or report huge losses, leading to huge price changes.

This low level of regulation also helps keep costs low. Orders are directly placed with the broker who executes them on their own. Another advantage of deregulated markets is the ability to take short positions, something that is banned for a few security classes in other markets.

Volatility Can Be a Trader’s Friend

The major currencies frequently display high price swings. If trades are placed wisely, high volatility assists in enormous profit-making opportunities.

Variety of Pairs to Trade

There are 28 major currency pairs involving eight major currencies. Criteria for choosing a pair can be convenient timing, volatility patterns, or economic developments. A forex trader who loves volatility can easily switch from one currency pair to another.

Low Capital Requirements

Due to tight spreads in terms of pips, one can easily start forex trading with a small amount of initial capital. Without more capital, it may not be possible to trade in other markets (like equity, futures, or options). Availability of margin trading with a high leverage factor (up to 50-to-1) comes as the icing on the cake for forex trades. While trading on such high margins comes with its own risks, it also makes it easier to get better profit potential with limited capital.

Ease of Entry

There are hundreds of forex technical indicators to draw on for short-term traders and several fundamental analysis theories and tools for long-term forex trading, creating an enormous choice for traders with varying levels of experience to make a swift entry into forex trading.

Due to the large size of the forex market, it is less susceptible to insider trading than some other markets, particularly for major currency pairs. However, it is still sometimes subject to market manipulation.

Cons of a Forex Trading Career

In essence, there are lots of advantages to forex trading as a career, but there are disadvantages as well.

Lack of Transparency

Due to the deregulated nature of the forex market dominated by brokers, one actually trades against professionals. Being broker-driven means that the forex market may not be fully transparent. A trader may not have any control over how his trade order gets fulfilled, may not get the best price, or may get limited views on trading quotes as provided only by his selected broker. A simple solution is to deal only with regulated brokers who fall within the purview of broker regulators. The market may not be under the control of the regulators, but the activities of brokers are.

Complex Price Determination Process

Forex rates are influenced by multiple factors, primarily global politicsor economics that can bedifficult to analyze information and draw reliable conclusions to trade on. Most forextrading happens on technical indicators, which is the primary reason for the high volatility in forex markets. Getting the technicals wrong will result in a loss.

High Risk, High Leverage

Forex trading is available on high leverage, meaning one can get profit/loss exposure multiple times of the trading capital. Forex markets allow leverage of 50:1, so one needs to have only $1 to take a forex position worth $50. While a trader can benefit from leverage, a loss is magnified. Forex trading can easily turn into a loss-making nightmare unless one has a robust knowledge of leverage, an efficient capital allocation scheme, and strong control over emotions (e.g., the willingness to cut losses short).

Self-Directed Learning

In the stock market, a trader can seek professional assistance from portfolio managers, trade advisors, and relationship managers. Forex traders are completely on their own with little or no assistance. Disciplined and continuous self-directed learning is a must throughout the trading career. Most beginners quit during the initial phase, primarily because of losses suffered dueto limited forex trading knowledge and improper trading.

High Volatility

With no control over macroeconomic and geopolitical developments, one can easily suffer huge losses in thehighly volatile forex market. If things go wrong with a particular stock, shareholders can put pressure on management to initiate required changes, and they can alternatively approach regulators. Forex traders have nowhere to go. When Iceland went bankrupt, for example, forex traders holding the Icelandic krona could only watch.

The 24/7 markets make it difficult to regularly monitor prices and volatility. The best approachis to keep strict stop losses for all forex trades and trade systematically through a well-planned approach.

Pros and Cons of a Forex Trading Career

Pros

  • Low overhead costs–there are no commissions or regulatory fees. Anyone can trade forex with a small investment.

  • Highly liquid, with many market participants. This means few chances for market manipulation or price anomalies.

  • As the largest market, it is also one of the most versatile. There are many trading pairs, trading styles and analytical tools to choose from.

Cons

  • Low transparency. The biggest traders in the forex are major institutions, meaning you're always playing against the professionals.

  • High risk. Forex markets allow much higher leverage than equities markets, meaning a leveraged trader can get wiped by small fluctuations in currency prices.

  • There are no experts or portfolio advisers to rely on. Forex traders have to learn the ropes on their own.

The Bottom Line

The foreign exchange market has emerged as a lucrative opportunity for people with a financial background. With low entry requirements and markets open 24/7, anyone with a laptop or smartphone can potentially score large profits in the forex markets. However, those opportunities also come with high leverage and high risk. Anyone seeking their fortune in forex will need strict discipline and skill in order to succeed.

Forex Trading Career: Pros and Cons (2024)

FAQs

Forex Trading Career: Pros and Cons? ›

Forex is the largest and most liquid market in the world. Trillions of dollars worth are exchanged every day. A career as a forex trader can be lucrative, flexible, and highly engaging. There is a steep learning curve and forex traders face high risks, leverage, and volatility.

Is forex a good career? ›

Given its round-the-clock operation, geographical dispersion, and the volume of transactions taking place, the forex market provides a unique platform for individuals looking to venture into trading. Trading as a full-time career can be appealing due to the potential financial rewards and the flexibility it provides.

Is being a forex trader worth it? ›

Forex trading may make you rich if you are a hedge fund with deep pockets or an unusually skilled currency trader. But for the average retail trader, rather than being an easy road to riches, forex trading can be a rocky highway to enormous losses and potential penury.

Can you make a living with forex trading? ›

Yes, it is possible to make a more than decent living with forex trading. However, in order to do that, you must become a profitable trader. Once you are making consistent profits, and are among the top forex traders, you stand the chance to become a profitable trader with your own funded trading account.

What are pros and cons in forex? ›

Like other markets, the forex market also has advantages and disadvantages. An investor should be aware of them. Easy accessibility, low investment requirements, and high leverage are the top advantages of currency trading. However, market volatility and counterparty risk are the major drawbacks of forex trading.

Is forex hard to make a living off? ›

Often perceived as an easy moneymaking career, forex trading is actually quite difficult, though highly engaging. The foreign exchange market is the largest and most liquid market in the world, but trading currencies is very different from trading stocks or commodities.

Has anyone gotten rich from forex? ›

One of the most famous examples of a forex trader who has gotten rich is George Soros. In 1992, he famously made a short position on the pound sterling, which earned him over $1 billion. Another example is Michael Marcus, also known as the Wizard of Odd.

How much can you make with $1000 in forex? ›

First, however, let's assume you started day trading with a capital of $1000. In your strategy, you place a maximum of 15 trades a day (too many), lose 5 and win 10. You are looking at a total of 60 pips per day. As mentioned, you make roughly $20 a day.

How to turn $100 into $1000 in forex? ›

Your $100 will become $1000 to purchase this stock if you use a leverage ratio of 1:10. In this instance, you contribute 10% of the total trade amount of 100%, with your broker covering the remaining 90%. If you are looking for a trustworthy and reliable Forex broker then you should try HFM.

Is learning forex hard? ›

Learning where to start can greatly reduce stress and make the process easier. All of these may look overwhelming, but beginners usually take it step-by-step so that the learning material is always easy to handle. Forex trading for beginners is extremely hard, it requires hours of hard work.

How long does it take to learn forex? ›

The amount of time it takes to master forex trading on your own will vary depending on your dedication and commitment to learning. Some traders may be able to grasp the basics within a few weeks, while others may take several months or even years to become consistently profitable.

Can you make money on forex with $100? ›

Major Facts. A $100 deposit is sufficient initial capital to open a forex trade in a real Forex account without breaking risk management rules. On average, traders with medium-level experience can earn over 10% of the deposit per month. Professional traders' earnings can exceed 500% a year.

What is the average income for forex? ›

As of Apr 23, 2024, the average annual pay for a Forex Trader in the United States is $101,533 a year. Just in case you need a simple salary calculator, that works out to be approximately $48.81 an hour. This is the equivalent of $1,952/week or $8,461/month.

Why is forex trading so difficult? ›

Why is Trading Forex Hard? The Forex market is said to be hard because it is the most liquid market in the world and billions of people and entities intervene in it. Governments, politics, the weather, public health, corporate expansion or bankruptcy, the prices of foodstuff, everything influences the Forex market.

How much can forex traders make a day? ›

On average, a forex trader can make anywhere between $500 to $2,000 per day. However, this figure can vary significantly depending on market conditions, trading strategy, and risk management techniques. Some traders may make more than $2,000 in a single day, while others may make less or even incur losses.

Who is the richest forex trader in the world? ›

Ray Dalio – The Richest Forex Trader in the World

Ray Dalio is widely recognized as the wealthiest forex trader in the world. With a net worth of billions, Dalio's success in the forex trading industry is a testament to his exceptional skills and strategies.

How much do forex traders actually make? ›

On average, a forex trader can make anywhere between $500 to $2,000 per day. However, this figure can vary significantly depending on market conditions, trading strategy, and risk management techniques. Some traders may make more than $2,000 in a single day, while others may make less or even incur losses.

How much does a forex trader make? ›

As of Apr 23, 2024, the average annual pay for a Forex Trader in the United States is $101,533 a year. Just in case you need a simple salary calculator, that works out to be approximately $48.81 an hour. This is the equivalent of $1,952/week or $8,461/month.

What is a forex trader's salary? ›

Forex Trading Salary
Annual SalaryHourly Wage
Top Earners$101,500$49
75th Percentile$96,000$46
Average$76,005$37
25th Percentile$46,500$22

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