What is the Best Way to Make Money in Forex?
Forex market offers you a unique making-money opportunity because it is easily accessible and always available. However, for you to extract real dollars from the market, you have to follow an approach that suits you. Deciding which approach to follow requires that you know what the different approaches are, how they work, their requirements, and their pros and cons. I will walk you through them one by one and lastly explore the easiest approach in greater details.
The different ways you can participate in the forex market
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Basically, you can be involved in Forex trading by following any of these three methods.
- You learn the art of trading and actively trade your account by yourself.
- You transfer your account to an account manager to trade with your money and then share the profit with him/her based on an agreed percentage.
- You copy the trading activity one or more professional traders.
Actively trading your account by yourself
It is rewarding to learn the art of trading and personally trade your account. Moreover, trading is nothing but clicking the buy or sell button once you know when to click the right button. But it’s not as easy as it sounds. This is the hardest route to trading the forex market. It requires you to put some efforts to learn how the market works. You will need to learn what moves the market in the short term, medium term and long term. You must keep tabs on the important economic data and events. Important political events like elections, house hearings and speeches of high ranking officials shouldn’t take you unawares. You must learn how to analyze chart patterns and indicators and device a robust trading and money management plans.
The pros are:
- you will be in control of your trading activity
- you will know about the forex environment and what’s happening all around the world
- you may make more money if you’re good at it.
The cons are:
- it is time-consuming and, requires tons of patience
- it is a tedious journey and, requires personal dedication and total devotion
- you may still not succeed at the end because not everyone has the right temperament and emotional control required.
Investing in a managed account
This method, popularly known as PAMM — percentage allocation management module or percentage allocation money management — is a more passive way of trading the forex market. Here you simply choose a professional trader from your brokers PAMM section, discuss with him and agree on the profit percentage, sign an agreement and transfer your account to him/her.
It requires you to study the performance of different professional traders on your broker’s PAMM platform using the criteria listed on the platform in order to choose a suitable trader. Some of the most popular criteria for assessing the traders’ performance are:
- equity curve
- number of trades
- profit factor
- number of investors
- return over a period — be cautious of very high value over short periods
- win rates — be cautious of win rates above 70 percent.
The pros are:
- you’re not actively involved in the trading activity
- you don’t need to follow all the events in the world
- your money is working for you.
The cons are:
- you’re not in control of your money and there may be a window period during which you cannot ask for your money without incurring some charges;
- your risk preference is not considered; the entire fund is at the mercy of account manager;
- you’re sharing profits but that may not be the case for losses; losses can and do occur sometimes.
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You can copy the trading activity of one or more professional traders. This is called Copy Trading or Social Trading. It is the easiest way to make money in the forex market. Unlike PAMM, your funds remain with you in your forex account and you have some control over it. You subscribe to one or more professional traders through a broker that offers copy trading platform or independent service provider like ZuluTrade. Whenever any trader you copy places a trade, the trade is automatically placed in your account too. Additionally, there’re settings through which you can fine tune the trades that are copied in your account to suit your risk appetite and, you can choose to suspend the copier at any time.
As easy as it sounds, you still need to know which traders to copy. You have to go through the account history of the listed traders and assess their performance using the criteria available on the platform. The criteria are similar to the ones in PAMM.
The pros are:
- you’re not so actively involved in the trading activity
- you’re in charge of your account and your money
- you can still control your risk exposure.
The cons are:
- not always easy to find a trader that mirrors your exact risk preference,
- presetting the copier to adapts the trades to your risk appetite creates a divergence from the professional trader’s trading plan.
Copy trading tips — how to select the most suitable traders to copy
- Be sure the trader(s) have been trading for more than two years.
- Check his/their equity curve for a gradually consistent rise. Avoid swinging equity curve.
- Avoid those with greater than 70% win rate; they hold on to losing
- Avoid those that have too many open trades; they risk too much.
- Avoid those with more than 10% maximum drawdown.
- Go for those with an average profit that is double of the average loss. They obey a good risk-reward
In conclusion, the best way to make money in forex is to know the different ways available, identify the one that suits you, learn about it and follow it. Copy trading is by far the easiest and fastest way to start making money in forex but you must be able to do it right — find the most suitable traders, preset your risk parameters and spread your risk among a couple of traders.
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