Investments

Is Forex trading profitable?

Onprofitability: a definition

In the business world, an economic activity is profitable if it’s able to generate earnings relative to the associated expenses. In other words, profitability is basically the ability of making monetary gains from a given activity. In the financial world, on the other hand, profitability is often related to the ability of generating a positive risk-adjusted-return at a given point of time, even consistently over time.  Given the first definition, it’s safe to assume that the Foreign Exchange market is profitable since it is clear that is possible to make money in the market, otherwise, it wouldn’t exist according to basic economic laws. Naturally, this is only taking the ability of making positive net gains into account, bringing risk into the picture makes our question a little bit trickier since it is known that the Forex market is particularly risky, which means that the chance of having an actual return differing from the expected outcome return is not negligible. In other words: you can lose money easily on Forex, especially if you’re not skilled enough.

Facing the reality: Forex is not a magic alternative

The internet is full of promises claiming the ability of making impossible returns with minimum effort. Those scams are not exclusive of the Forex market, however, it’s a fact that they are common in the industry. Reality is that Forex is like any market, having the proper skills and the determination of taking the necessary amount of risk to generate profits is essential, and despite all of that, making surreal profits in a reduced time span (way higher than those of skilled Hedge Funds) is not a possibility.

Proper trading strategies and risk aversion

Like any market, having success in Forex is related to the quality of the involved trading strategies and the behavior of the investor. Both are important components in the making of a successful trader in any market, and both require concessions, time and money. Acquiring the ability to make the right decisions, designing proper trading strategies and being able to manage the risk properly takes time and a huge amount of effort, besides that, a proper behavior is required, if you are a Risk Averse investor this might not be the right option for you if your purpose is making economic gains, since is a fact that profits are proportional to the amount of risk the investor is willing to take. It’s also important to get a proper training and to have access to the right information, since (as we just said) the internet is full of scams and empty promises.

Coming back to the initial question: is Forex profitable?

Like many things in life, the answer depends on who you ask. If you ask an investor who has been trading successfully for years after spending a considerable amount of time and money the answer is probably going to be positive, otherwise, he wouldn’t invest his time and efforts in such activity. On the other hand, if you ask an unexperienced risk averse investor you might get a negative answer, since (as we stated above) Forex is not a magic mechanism and being successful requires effort.

 

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