All through the year, we’ve been getting plenty of questions on various aspects of Forex trading, and we’ve noticed there are some common questions we often get over and over. So, we sought to settle these common questions by answering them in this article, and lessen the burden of having to repeat the same answers over and over. Below are the 10 most frequently asked questions:
1. How many people are profitable?
Everyone who asks this question is probably worried about trading because they’ve heard the oft quoted figure of only 5% winners trading the markets. Unfortunately, there is no way to confirm whether this figure is true, or where it originated from, but the truth is that there are a lot more losers than winners. The CEO of Forex Capital Markets (FXCM), a broker Forex, Drew Niv, recently admitted that about 20% of their accounts are profitable.
That might be higher than 5% which most people think, but it’s still a grim prediction. The better question, therefore, would be, what sets these 20% of traders apart from the rest? Then, the answer would be simpler, follow the steps successful traders take and avoid common mistakes the rest make.
2. How long does it take to become profitable?
I like this question because it probably comes from a person who has already had an experience trading the markets. Again, you might find some common numbers thrown around on this point stating that you should have traded for at least 2 to 3 years. The blunt truth is that most first-time traders on live accounts lose money; most lose a little and quit while some will have their accounts wiped out in a few months, then quit. Only the resilient traders who face this loss and keep going make it to become profitable traders.
As for the number, there is no definite number because we are all different and learn trading at different speeds. It took me a year to start breaking even after a lot of losses, and it was only in the second year that I started to make any profits. Yet I know of people who became profitable after 6 months, others took 5 years. My point is that there is no definite answer, but the only thing that’s for sure is you’re going to lose money initially, but if you persist and follow advice from experts, you’re going to make it.
3. Which is the best Forex broker to use?
There is no single answer to this question because every trader has different needs in terms of minimum deposit, payment systems, Forex trading platforms, etc. For this reason, you have to perform your own Forex broker comparison and find the broker that works best for you.
4. Which is the best timeframe to use?
All timeframes are profitable, and it all depends on your trading strategy. Long-term traders or swing traders make only a few trades in a week, so the higher timeframes, 4H and above are the most dependable. As for scalpers and other short-term day traders make use of shorter timeframes, H1 and below to catch minor trends in the market.
5. Can you trust expert advisors and technical indicators?
These are only tools to help you in your trading, but you shouldn’t trade solely on the information provided by these sources. You should only make use of them to confirm what you have learnt after analysing the Forex charts online yourself. That being said, do not throw away all indicators just yet, install them on your trading platform and test them on a demo account – if it works, you can use it.
6. How many pips a day/week are considered profitable?
You will notice that in the article on creating your own trading strategy, I never mentioned a specific number of pips to aim for. There are 2 reasons for this, one, because the amount of money tied to a single pip depends on leverage and the volume of each trade, so one trader’s pips can bring a higher profit than the other’s. Second, having a pre-set number of pips to aim for forces you to make trades just to make the quota. Trading is about patience and waiting for a good opportunity, and you shouldn’t make a trade simply because you’re aiming to make a certain number of pips before the markets close.
7. How does Forex compare to other financial instruments?
Besides the Forex market, you can also trade stocks, options, futures and other instruments online, so, which is the best? It’s a matter of preference, really, because all these avenues are profitable and open to everyone. The one problem with Forex trading is that it is decentralized and although Forex regulators attempt to clamp down on fraud, there are still plenty of Forex scams out there. As for the CFD trading Forex brokers who offer options, futures, binary options, etc., they face a lot more scrutiny because these instruments are centralized and less prone to fraud.
8. How much deposit should I start with?
The minimum deposit on opening a Forex trading account will depend on the account type itself, so in theory, you could open an account with as little as $1. However, the recommended minimum is $500 because it gives you access to a standard account which has the possibility of bringing in a decent profit.
9. Which are the best currency pair to trade?
It’s best to stick with the major currency pairs like the EUR/USD, GBP/USD, USD/JPY, etc. However, there’s nothing wrong in trading with exotic pairs sometimes, in fact, I’ve had great profits trading pairs like USD/NOR and USD/MXN. The only problem is that the spread tends to be larger and your trade starts off on a huge negative number, but when the timing is right, these pairs can move plenty of pips in a day. The point is, most of your trades should be concentrated on the major pairs, but you should not restrict yourself; with proper risk management, you can make even the exotic pairs work for you.
10. What is the best time to trade?
There are 3 main trading sessions – Asian, London and New York, which keeps the Forex market running 24/7. However, you shouldn’t trade all day, even though you can. It all comes down to your trading strategy. For example, a trend trader who trades after a trend is established should not trade at the crossover periods when the trading sessions overlap. These periods are best for those who like to trade the breakouts. In short, the best time for you to trade will depend on whether you thrive on the chaos of uncertainty in the markets that lead to breakouts, or the safety of established trends which hold throughout the day.
As I mentioned earlier, these are some of the most commonly asked questions, but we’re open to answering any questions not mentioned in the comments section below.
In the meantime, this video will explain the basic terms of Forex trading, which is also another commonly asked question, but one whose answer is too long to put in one post: