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What is Maximum Drawdown?

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A common occurrence in trading is a drawdown that can blow a trader’s account balance. To minimize the effects of a drawdown, traders should set stop losses at important price levels and have a solid money management plan.

But let us start from main definition:

What is the drawdown in trading?

In trading, drawdown represents a percentage of how much your trading account balance is down from the peak before it recovers back to the peak. However, traders recognize three types of drawdown: Maximum, Absolute, and Relative.

We wrote more about absolute drawdown in our previous article.

What is the maximum drawdown?

The maximum drawdown represents the price difference between the maximum portfolio value (peak) and the most significant decline  (minimal portfolio price level) during some trading periods. For example, if the deposit amount for your trading account balance is $10000, the maximum portfolio value, for example, was $16000, and the minimum was $7000, then the maximum drawdown is $16000-$7000=$9000.

Maximum drawdown formula is:

Maximal drawdown = Maximum distance (Maximal Peak – next Minimal Peak)

Please see the maximum drawdown example on  the chart:

maximum drawdown vs absolute drawdown

So explaining maximum drawdown is very easy.

Practically, you have a trading account with a balance of $10000. In one moment, you make maximum profit and reach, for example, $16000. Now, if you, in one moment, have a minimum balance of $7000, we can say that the maximum drawdown is the difference between your portfolio maximum ($16000) and portfolio minimum ($7000).

Please watch my video about maximum drawdown:

 

Conclusion

A drawdown is a normal moment in trading because each trader has ups and downs. However, drawdowns need to be as low as possible because big fluctuations can lead to losing money in trading. For example, I am trying to keep my maximum drawdown below 10 percent. When I manage money for big corporations, I need to maintain a drawdown of less than 5%.

 

What is a Recession?

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The economy is a complex and interconnected system that can be influenced by various factors, including changes in interest rates, tax policy, and consumer spending. When the economy is experiencing growth and prosperity, it is generally considered to be in good shape. However, when the economy goes into recession, it can hurt businesses and consumers alike.

In today’s globalized world, economic recessions can occur due to various factors. Some of these include shifts in consumer preferences, rapid technological advancements that disrupt traditional business models, or external shocks like political instability or natural disasters. Despite these challenges, there are steps that policymakers and businesses can take to help minimize the effects of the recession on the economy as a whole.

At its core, a practical approach to managing economic recessions must focus on creating an environment where businesses and consumers feel confident about investing their time and money. This may involve providing targeted tax breaks for specific industries or regions, implementing policies encouraging innovation and growth in key sectors, or taking other steps to improve overall economic conditions. By working together to strengthen the economy’s foundation during the recession, we can build a more resilient and prosperous future for ourselves and future generations.

In this article, we will write about the basic recession meaning. If you want to know more about how to buy precious metals during the recession, read my article.

If you live in the US and want to protect your IRA during the recession, visit the website and download a free pdf. However, if you live outside the US, you can trade gold and silver during a recession using an HFM broker.

We suggest you visit our page, Best Forex brokers, if you are a non-US resident.

What is a recession?

A recession is a period of slow or negative economic growth characterized by declining consumer spending and investment, rising unemployment, and falling prices. Recession can occur due to natural factors like increased competition from similar products or as an intentional government policy to help restart economic growth during times of low demand. While a recession may be difficult for individuals and businesses, it can also rebalance the economy by reallocating resources to more efficient uses.

what is recession

Despite some positive signs in recent months, such as increased consumer spending and improved housing sales, many experts fear that the global economy is still fragile and could be vulnerable to further shocks. If these fears are realized, it could mean more hardship for businesses and workers worldwide, as well as increasing pressure on policymakers to address this ongoing crisis.

How to stop the recession?

  • The first step in stopping recession and slowing down inflation is identifying key indicators indicating the economy’s health. These may include unemployment, wage growth, consumer spending, industrial output, and business investment.
  • Once these key economic indicators have been identified, economists can develop strategies for stimulating economic growth and mitigating inflationary pressures. For example, this may involve implementing tax cuts or investing in public infrastructure projects.
  • Another critical step is to monitor the impact of these policies over time and make adjustments as needed. This may involve tweaking tax rates or stimulus packages based on changes in labor market conditions or other factors.
  • Finally, economists must also work closely with policymakers at all levels of government to ensure that their recommendations are implemented effectively and efficiently. This often involves communicating with lawmakers about the potential impacts of new policies on macroeconomic conditions and advising them on how to respond to changing economic conditions.

As we continue to navigate through this challenging economic environment, it is essential for individuals and businesses alike to remain diligent and focused on finding ways to weather this storm. By working together and utilizing effective strategies for coping with recessionary pressures, we can help ensure that our economies and communities emerge more vital than ever on the other side.

The most common way that recessions are categorized is by the shape of their recovery, which can vary widely depending on the factors that caused them in the first place. Some of these factors may include changes in interest rates, shifts in consumer spending habits, or disruptions to supply chains.

Despite the challenges associated with recessions, several vital facts are essential to understand. One is that they tend to be temporary phenomena, usually resolving over time as businesses and consumers adjust to the new economic landscape. Another critical fact is that different sectors of the economy may be affected quite differently during a recession. For example, while manufacturing and housing may take a significant hit during a recession, other sectors like technology or healthcare may remain relatively stable.

Overall, it is essential to remember that recessions are part of the average economic cycle and can often provide opportunities for businesses and individuals to grow and thrive amidst changing market conditions. It is essential to stay informed about current trends in your industry or sector to best prepare for a recession and take advantage of any opportunities it might present.

Consumers and recession

When it comes to recessions, one of the most important factors is the role of consumers. In a recession, consumers can play a crucial role in whether or not an economy continues to slide into negative territory by spending more money or cutting back on spending habits.

recession consumers and food

There are a few different reasons why this is the case. For one thing, when consumers lose confidence in the economy and begin to save more money, they may reduce their spending on goods and services. This can significantly impact businesses, as they depend on consumer spending to keep their operations going.

As a result of this reduced spending power, businesses may need to cut back on their spending as well – which can include things like lowering wages and trimming their workforces – to keep up with lower revenue levels from customers. This often leads to rising unemployment and less overall income for consumers, further contributing to the business cycle’s downward portion.

Another potential factor contributing to the recession cycle is inefficient spending practices among consumers or businesses. For instance, if consumers take on too much debt that they cannot realistically pay back when times get tough, this can create an unsustainable cycle of overspending and financial problems that can lead to lower consumption levels.

Similarly, suppose businesses expand into new territories or products that might not be supported by changing economic conditions or cannot sustain themselves during periods of slower growth or contraction. In that case, this also puts them at risk for financial failure and the loss of jobs for employees. This frivolous or unsustainable behavior among consumers or businesses is often a significant contributor to economic downturns.

Currency pairs and recession

Currency pairs can play an essential role in an economic recession, as they can help investors to hedge against potential losses. During periods of economic turmoil, specific currency pairs may be more sensitive to market changes or economic conditions than others.

recession is comming

One key factor when trading during a recession is the underlying currencies’ value. For example, suppose one currency is seen as being particularly vulnerable during a downturn due to factors like high debt levels or high inflation. In that case, investors may choose to short that currency and purchase another currency instead. This can help them mitigate risk and better protect their investments during economic uncertainty.

In addition to assessing the value of different currencies during a recession, paying attention to how interest rates may impact these currencies is also essential. When central banks cut interest rates to stimulate the economy and encourage lending, this typically leads to lower exchange rates for that currency. Therefore, those trading currency pairs may want to keep an eye on interest rates to make more informed decisions about where they invest their money.

Overall, trading currency pairs during an economic downturn can be risky but potentially lucrative. By researching and understanding how different market conditions could impact your investments, you can take steps to minimize your risks and maximize your potential gains during these volatile times.

I think currency pairs depend on interest rate politics during a recession. If governments try to increase the interest rate to slow inflation, that currency pair will increase in price.

Great Depression Recession

The Great Depression was one of the most devastating recessions in US history. This economic downturn began in the late 1920s, triggered by a series of events that included a stock market crash and high unemployment rates.

great depression people infront stock exchange

During this period, many Americans found it difficult to find jobs or make ends meet, and many lost their homes and businesses due to the recession. The Great Depression’s long-lasting effects on the US economy contributed to rising poverty rates, increased income inequality, and decreased economic growth.

Despite these challenges, many Americans banded together during the Great Depression to support one another and help struggling families get back on their feet. Some organizations provided food and housing assistance to those in need, while others worked to create more robust social safety nets for those struggling with unemployment or poverty.

Today, we continue to learn from the lessons of the Great Depression – both positive and negative – as we work to improve our economy and build a more resilient society. Even though the US has experienced other recessions since then, none have been quite as severe or widespread as the Great Depression. And with strong leadership at all levels of government and society, there is hope that we can prevent future recessions from becoming as disastrous as this one was.

2008 financial crisis

Some economists believe that the current recession, which began in late 2008, maybe the worst since the Great Depression of the 1930s.

The 2008 financial crisis was caused by several factors, including cheap credit and lax lending standards. These conditions led to a housing bubble that eventually burst, leaving the banks holding trillions of dollars of worthless investments in subprime mortgages. The Great Recession affected millions worldwide, costing many their jobs, savings, and homes.

bank owned real estate crisis 2008

One of the key drivers of the financial crisis was easy to access to credit. Many banks offered low-interest loans and offered credit cards to consumers with poor or no credit history, often without requiring any collateral. This made it easy for people to borrow money to purchase homes and other assets such as cars or even stocks.

However, this cheap credit came at a cost. To make these loans profitable, many banks relaxed their lending standards and ignored signs that borrowers may be unable to repay them. They allowed borrowers to take out large home loans they could not afford or approved home refinancing that put homeowners at risk of losing their houses if they fell behind on payments.

Other factors also contributed to the crisis, including questionable mortgage practices such as predatory lending and irresponsible investing by financial institutions that involved risky financial products like derivatives and collateralized debt obligations (CDOs). These factors contributed to an economic bubble fueled by speculation and greed that ultimately burst in 2008.

As a result of the financial crisis, millions lost their jobs and homes when the economy went into recession. The effects were felt worldwide, causing upheaval in developed countries like the United States and emerging markets like China and India. Though measures have since been taken to stabilize the economy and prevent another crash from happening again in the future, many are still affected by the consequences of this devastating crash nearly a decade later.

The recession of 2008 was one of the most severe economic downturns in recent history, causing widespread job losses, falling wages, and increased unemployment.

At the time, economists were unsure why this recession hit so hard or had come on so suddenly. Some blamed rising oil prices, while others pointed to the general decline in housing prices, which had been steadily dropping since 2006. Whatever the cause, the result was a period of instability and uncertainty that affected businesses and consumers alike. Many companies were forced to shut down or lay off workers to stay afloat, while families struggled with ever-increasing bills and mounting debt.

Despite these challenges, many people also saw this period as an opportunity for change and renewal. Amidst all the fear and worry over layoffs and financial hardship, a renewed focus emerged on entrepreneurship and self-sufficiency.

Almost ten years later, the economy has largely recovered from that recession. Although there are lingering effects in some sectors of the economy – particularly those tied to housing – most people have moved on from this challenging time. They are looking forward to brighter days ahead.

What is the Difference Between a Recession and a Depression?

A recession is a period of economic decline, defined as two or more consecutive quarters of negative growth. While a recession is usually associated with a severe downturn in the overall economy, it can also occur within a single sector of the economy – such as in housing, energy, or retail.

In contrast, depression is an even more severe economic downturn characterized by long periods of falling output and high unemployment rates that persist for several years. Because of its scale and duration, a depression affects multiple sectors and countries worldwide, resulting in widespread adverse economic outcomes.

depression vs recession worse version

While there is no definitive definition of depression, many economists use the terms interchangeably to refer to severe recessions that are protracted or extend beyond two or three years. With that said, some analysts believe there should be apparent differences between these terms based on the severity and duration of an economic contraction.

For example, while most economists would consider the Great Depression to be an example of a full-blown depression, they may only characterize lesser recessions as “severe” or “protracted” recessions instead. This distinction can also apply when measuring recessions across different economies. So while some countries may experience milder recessions over shorter periods than others, all recessions are considered adverse events that negatively affect growth and employment in those countries.

Despite these distinctions between different levels of economic contraction, it is essential to note that even minor recessions can have lasting effects on workers and businesses due to reduced consumer demand and high unemployment rates during these difficult periods. This means that individuals and companies should take steps to mitigate any potential risks before and after an economic contraction occurs by developing financial plans for restructuring debt obligations or creating new business models for accelerated growth during future upturns in the business cycle.

Boom and bust recession

A boom and bust recession is a period of economic expansion followed by contraction, where the economy moves between periods of high growth and decline. This cycle is often driven by various factors, such as changes in interest rates, government policies, or shifts in consumer demand.

During a boom phase, businesses tend to experience high levels of growth as consumers spend more money on goods and services. However, this also leads to inflation, as demand outpaces supply for many products and services. To counteract this and help slow down economic growth, central banks or other government agencies may implement policies to cool off the economy by raising interest rates or tightening lending standards.

boom and bust recession

In a bust phase, businesses typically experience lower levels of growth and profitability. Consumers may scale back their spending due to concerns about the economy or unmet financial obligations. As a result, unemployment and other negative economic indicators may rise during this period.

Several factors can contribute to boom and bust recession cycles, including changes in the business environment or government policies such as taxation. However, some economists also argue that these cycles may be driven by natural economic fluctuations that occur over time due to market forces. To better manage these cycles and ensure long-term economic growth, policymakers must understand their underlying causes and potential impacts on businesses and consumers.

Balance Sheet Recession

A balance sheet recession is a type of economic downturn caused by high financial debt levels. During a balance sheet recession, consumers and businesses focus on paying down their debts rather than spending money, which can hurt the economy’s overall health.

balance sheet recession

There are several possible causes of a balance sheet recession, including high-interest rates, overly loose credit markets, and insufficient savings during periods of economic growth. These factors can all exacerbate the issue by encouraging people to take on more debt than they can reasonably afford or discouraging them from saving for an emergency or future expenses.

One way to recover from a balance sheet recession is through government stimulus spending or tax cuts, which can encourage borrowers to loosen their purse strings and spend again. However, this strategy comes with challenges, as it is often difficult to determine how much stimulus should be provided to avoid further burdening the economy.

Suppose you want to avoid suffering the effects of a balance sheet recession. In that case, you must maintain healthy financial habits, such as saving for emergencies and making intelligent decisions about your credit card use. Additionally, it is essential to stay informed about current economic trends to make informed decisions about your finances and investments.

Investing in Precious Metals during Recession

Investing in precious metals can significantly diversify your portfolio and protect your assets during economic uncertainty. During a recession, stock prices typically decrease as investors pull their money out of the markets. At the same time, gold and other commodities tend to experience an uptick in value, making them a popular choice for savvy investors looking to capitalize on the economic downturn.

You can use several strategies when investing in precious metals during a recession. One approach is to hold physical gold or silver coins or bars, which can provide stability and liquidity during challenging economic times. Another strategy is to purchase mining stocks, which offer the potential for greater returns if the price of precious metals rises significantly.

Whether buying physical gold or mining stocks, it is essential to do thorough research and choose investments that align with your risk tolerance and financial goals. While investing in precious metals may not be suitable for all investors, it can be a valuable tool for protecting your portfolio during turbulent economic times.

If you live in the US and want to protect your IRA during the recession, visit the website and download a free pdf. However, if you live outside the US, you can trade gold and silver during a recession using an HFM broker.

How Many Forex Traders Are There in 2023?

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Today, you can manage your finances with a mobile phone from your home. It’s so simple; technology has contributed to the ease and speed of all processes and transactions, from paying bills to taking loans. It is much easier to become a trader today than 30 years ago. Traders need internet access, free software, and a broker’s account and trading can begin.

But, because of new technology, today is tough to calculate the number of forex or stocks traders (read our articles to see how many stocks traders there are)

How Many Forex Traders Are There

How many traders are in the world?


In 2023., there will be 14.5 million active online traders, according to professor Robert’s study and research papers. Based on this number, there is one trader in every 561 people, usually males between 25 and 50 years old.

Please watch the video that I created for this topic on youtube:

In the previous studies, there were around 13.9 Million online traders worldwide according to “The Modern Trader” report and BIS, released by Broker Notes in the latest report; in a 2014 study by Bapi Maitra, Citigroup expert, there are 4 million retail traders globally.

Activity in the forex market has increased dramatically after 1970. Based on the information provided by the Bank of international settlements, the daily trading volumes on average increased from approximately 1.2 trillion in 1995 to 5.1 trillion 21 years later. This makes it the most significant financial market in the year. While banks and large financial organizations contributed to a considerable part of the trading volumes, more customers can trade in forex using the latest technologies. The online trading platforms developed by forex brokers are simple, easy, and available worldwide. Many would like to find out How many forex traders are there? Research indicates that approximately 9.6 million people are trading in forex online.

How many traders are there per continent:

Continent/RegionApprox. number of online traders
Asia4630400
North America2170500
Europe2170500
Africa1881100
Middle East1403590
South America868200
Central America484745
Oceania274930

number of traders in the world per continent

How many forex traders are in Europe?

There are from 1.5 million up to 2 million traders in Europe. The number of European online traders is 1.5 million (2021. ), and the ratio of traders to internet users is 1:434

RankCountryApprox. number of online traders
1United Kingdom405160
2Germany217050
3Italy217050
4France188110
5Romania159170
6Spain140359
7Netherlands94055
8Poland88267
9Denmark53539
10Russia52092
11Hungary44857
12Bulgaria43410
13Greece43410
14Sweden41963
15Portugal39069
16Ireland36175
17Czech Republic31834
18Norway30387
19Ukraine28940
20Switzerland28940
21Austria27493
22Croatia26046
23Lithuania23152
24Belgium20258
25Slovenia17364
26Slovakia17364
27Estonia17364
28Serbia12878.3
29Finland12154.8
30Kosovo10563.1
31Albania8682
32Latvia8682
33Malta6511.5
34Moldova5498.6
35Iceland3906.9
36Luxembourg3038.7
37Belarus2749.3
38Montenegro1591.7

Location of online traders

>Forex trading is a global business, and brokers have gotten permission from regulators in many countries. In other cases, they have arranged to promote their services outside their home country. Research indicates that one-third of the forex traders are based in the middle east and Asia. This number exceeds more than one million European and North American traders’ populations. Though London, the UK, and New York in the USA are the major forex trading centers, forex traders are found worldwide.
<h2 Internet users and forex trading

At present, anyone can become a forex trader with an internet connection. Most trading platforms are designed for mobile phone access, so personal computers are not required. There are 3.8 billion who use the internet worldwide, so 1 in 396 is an online trader. The US has 320 million people using the internet, and research indicates one trader for every 213 online traders. A 2014 Aite group study suggested that a quarter of internet users in the USA who are adults might have tried online trading. The number of European online traders is 1.5 million, and the ratio of traders to internet users is 1:434

Though Asia has the highest internet users at 1.9 billion, the proportion of online traders is lower at 3.2 million for a ratio of 1:594 users. Though Africa has only 388 million people with internet access, it has 1.3 million traders online for a higher trader-user percentage of 1:298. The Middle East has the highest trader-to-user ratio of 1:152, with 147 million people with internet access. The predominantly Muslim online traders in North Africa and the Middle East face a problem since gains from trading, Riba is not allowed according to Islamic law. The forex accounts which have open transactions after trading hours are subjected to fees that may be credited or debited.

Since these fees are considered usurious, restrictions are imposed on currency trading so that currency exchange will comply with sharia law. Many brokers have noted these restrictions to offer trading accounts complying with Islamic rules. Selling and buying currency is immediate for these accounts, and no interest is paid. Since Muslim traders can trade in foreign currency while complying with their religion, a higher proportion of traders in this region.

The UK, European traders

Statistical data indicates that the UK has 46 million people with internet access; the number of online traders exceeds 280,000 for a trader: user ratio of 1:164. Britain has the highest number of online traders in Europe. Regulatory changes in Europe regarding leveraged products like CFDs and Forex have reduced the number of forex traders. France and Holland do not allow leveraged products, the Cyprus regulator has restricted leverage to specific customers, and Belgium has imposed a total ban on leverage for forex.

Though the UK Financial Conduct Authority(FCA) has considered controlling the leverage, no changes have been implemented. As a result, UK traders can trade on margins, making only small deposits. Since the salary of more than 50% of UK online traders is more minor than GBP 35000, this margin trading is beautiful. Though Bafin, the German regulator, has implemented changes to protect users from negative balances, German forex traders’ trading volumes remain low, slightly more than half the UK trading volume. Though the internet makes traders from different countries and faiths trade in forex, the UK has some of the highest volumes for forex trading.

Conclusion

There is no definitive answer to this question, as many factors can influence the number of active forex traders worldwide. These factors include economic conditions, technological advancements, and social trends. However, based on the data from professor Robert’s study and research, we can estimate that there will be approximately 14.5 million active online forex traders in 2023. This suggests that there is one trader for every 561 people, with most of these traders being males between the ages of 25 and 50. While this estimate may not be entirely accurate due to various potential variables, it provides valuable insight into the current state of global forex trading and its potential growth in the coming years.

Is Technical Analysis Pseudoscience?

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Some traders and investors criticize technical analysis because they believe that fundamental analysis only matters while technical analysis is pseudoscience. Misconceptions regarding technical analysis can be traced back to a lack of basic knowledge, high expectations, and wrong assumptions.

Is Technical Analysis Pseudoscience?

No, technical analysis is not pseudoscience because technical analysis uses statistical scientific methods,  real price levels, and various mathematical models. Technical analyses of past price behavior define possible outcomes like risk analysis.

Is Technical Analysis Pseudoscience

The stock market and forex market have a reputation for being highly volatile places. Any security can benefit from a technical examination (stocks, bonds, derivatives, etc.) if you’ve had a price and volume data from previous trades. The use of technical analysis in stock trading is not as widespread as in forex and commodities trading. However, it may still be beneficial and help investors better understand the market. Over-reliance on numbers instead of fundamentals is a bad idea.

What is Technical Analysis?

Technical analysis represents a systematic financial method that analyzes assets such as securities, forex, and futures, using market information (price, volume, and time). The goal of technical analysis is to identify potential trading opportunities.

what is technical analysis

 According to contemporary portfolio theory, many of the same methods used in behavioral economics and quantitative analysis are also used in technical analysis. According to the efficient-market hypothesis, both technical and fundamental analysis is ineffective, which holds that stock prices are unpredictable. Research on whether technical analysis provides any advantage has yielded inconsistent findings.

Technical analysis assumptions are:

  1. The market discounts everything – Meaning that all information is already priced into the market. This assumption is based on the idea that the market is efficient and that all information is reflected in the price.
  2. Prices move in trends and countertrends – Prices trend up and down, sometimes forming channels or ranges.
  3. Price action is repetitive, with specific patterns reoccurring – Patterns such as head and shoulders, double tops/bottoms, wedges, and flags are all common price formations that can predict future prices.

Technical analysis is based on the premise that markets are efficient and that all factors that impact an instrument are represented in the price. As a result, patterns and trends tend to reoccur throughout time. Consequently, technical analysts think that all market aspects are reflected, including market sentiment and the underlying fundamentals. For short-, medium, and long-term trends, traders merely need to evaluate price fluctuations to identify possible supply and demand regions or the beginning of new trends. It supports the assumption that an asset’s price is more likely to continue or begin a trend than to remain in a range. Technical analysts, like most others, are convinced that the past will inevitably repeat itself in the future.

Why do people think that technical analysis is pseudoscience?

People think technical analysis is pseudoscience if analysis can not accurately predict future prices. Additionally, the expectation to predict future prices with high accuracy from historical data create a false picture in traders’ mind.

The first problem is expectation. Some traders believe that technical analysis is a prediction tool, so they think that if you determine a bullish trend on the chart, 80% of that trend will continue to rise. However, the truth is different. Trend continuation has an increased probability in that case, but how much?

Using technical analysis, we make scenarios or prediction models. Suppose we have a model where we risk $1 and try to target $1. We aim to create a 53% accurate or 55% winning model in both cases. If someone develops an 80% win percent model, that person will be a billionaire in less than a month. So, a low level of accuracy is normal in short-term trading.

So, for example, weather prediction can be wrong often if you expect to guess the right temperature each day or to predict the weather for next week. That not means that meteorology is pseudoscience if the accuracy prediction level is low.

The technical analysis is not pseudoscience because:

  • Technical analysis uses scientific modeling and statistics to present historical data
  • Technical analysis uses machine learning models and AI to create models based on actual data
  • Low probability level  models (around 50% accuracy for $1 risk and $1 target) do not mean that technical analysis is pseudoscience
  • Pseudoscience does not use experiments or scientific evidence, while technical analysis uses previous data and tests.

There is one more fact:

Fundamental analysis prediction models do not have a higher probability than technical analysis. Both approaches are not part of pseudoscience. The future price depends on market sentiment and what big traders want to do in the market. If the fundamental analysis shows interest rate increase prices, that does not mean that 100% of the price will go up for that currency.

See example:

fundamental analysis and price in opposite

Is Technical Analysis Scientific?

Technical analysis has a foundation in scientific methods and is part of science. The technical analysis goal is to analyze behavior, create scenarios of future price movement and basic price levels, and determine entry, stop loss, and target price levels.

All oscillators and major trading indicators are based on time, volume, and price and use basic statistical equations (part of the science).

Patterns in asset movements, such as a stock’s or currency’s movement, are used by traders as indicators of future moves. They may notice, for example, that an asset never climbs more than a particular number of points before it begins to decline and never falls over a certain number of points before it rises again. That pattern will help them determine when to purchase and when to sell. Technical analysis is based on the notion that assets react predictably. In other words, the globe isn’t a one-way street.

After paying the broker’s fee, the earnings on modest moves are much lower. Speculators employ leverage in their short-term bets to profit. When borrowing money to trade, they use their investment as collateral. If the deal succeeds, you can make a higher profit, and the investment can be repaid with interest if necessary. However, if investors lose, they stand to lose much more money. You might lose a trader’s absolute position if they utilize leverage. Although many schools claim to teach day trading with technical analysis, it can take months or even years to become proficient enough to make a consistent profit. Skilled traders may expect to lose at least 40% of their trades if they’re competent. As a result, a majority of short-term businesses fail.

Conclusion

Market movements are studied using a highly subjective method known as technical analysis, which relies on assumptions and practices that have been scientifically confirmed to be true. Technical analysis is not pseudoscience, only traders’ expectations are too high.

Is Forex Trading Tax Free in the UK?

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The UK is home to one of the world’s largest and most active forex trading markets, with a wide range of traders using various trading instruments to make their profits. As with any other type of trading or investing, forex traders in the UK must pay taxes on their earnings.

Four main types of tax apply to forex trading in the UK: Income Tax, Corporation Tax, Capital Gains Tax, and Stamp Duty Reserve Tax. Income Tax is paid on your total earnings from all sources, while Corporation Tax applies only to payments from your limited company. Capital Gains Tax is paid on profits from selling assets, such as shares or property, and Stamp Duty Reserve Tax is paid when you buy shares in a company.

Each tax type has its rules and regulations, which can be complex and vary depending on factors like how much you earn and what trading instruments you use. Forex traders need to understand these rules and stay up-to-date on any changes that may occur to ensure that they are paying the correct amount of tax.

To learn about US tax for forex traders and corporate tax by country, read our article.

taxes in the us

At times, taxes can be the deciding factor for whether or not an investment will be made. This article is a must-read if you are a Forex trader from the UK. However, before we begin to discuss your taxes on Forex trading, these are the things that you need to consider:

  • Your taxes will depend on the kind of trader that you are. For example, you can be an investor or a gambler/speculator.
  • The next deciding factor can be the type of instrument you plan to trade. For example, it could be CFDs or spread betting.
  • The last factor will take into consideration your finances. This is a subjective point as every individual has a different financial circumstance. Your salary bracket, trading frequency, trade quantity, and more will be evaluated.

Once you have clarity regarding the above-stated points, we can move forward.

How do you pay tax on forex trading in the UK?

Usually, the majority of forex traders that trade CFDs in the UK pay taxes as Capital Gain Tax (CGT). So if your annual profit is less than £50,270, you will pay a 10% tax. The amount can be less than that if you have lost in previous years. However, if you trade spread betting, you will be tax-free for any profit.

If you trade forex as an additional side job and do not trade CFDs, you will pay tax based on the income tax rate.

Forex Income Tax in the UK as a side freelancer job

Let’s assume you work in a company and are the side gig freelancer forex trader, and you do not trade CFDs.

Forex income tax can be a confusing topic for freelancers in the UK, particularly those earning income from trading in foreign currencies.

At the basic level, if your forex trading is considered a side gig rather than your primary source of income, you will generally be covered by the Trading Allowance. This allows you to earn up to £1000 of extra income tax-free yearly. Any profits you make over this amount will be taxed at the standard 2022/23 Income Tax rates.

If you are a higher-income earner, you may also qualify for the Higher Rate Income Tax threshold, which means that your first £50,270 will be taxed at 20%, and any additional taxable income over this amount will be taxed at 40%. You may qualify for the Additional Rate of 45% if your taxable income exceeds £150,000.

See Income tax rate in the UK for 2023:

Income in poundsTax rateIncome rate type in UK
Up to 12,5700%Personal allowance
12,571 to L50,27020%Basic rate
50,271 to 150,00040%Higher rate
over 150,00045%Additional rate

To determine how much tax you need to pay on your forex earnings and ensure that you comply with all applicable tax laws, it is essential to consult with a professional tax expert or financial advisor who can guide you through the process and help minimize any potential liability.

Income tax for forex traders is calculated by calculating your taxable income (see Table above), adding your allowances, and subtracting any losses from previous years as a forex trader.

Forex Capital Gain Tax

Capital gains tax, or CGT, is a tax that applies to any profits you make from the sale of certain assets in the United Kingdom. The rates for CGT depend on your overall annual income and can be either 10% or 20% of your capital gain, depending on your income level.

All forex traders in the UK that trade forex in the form of CFDs pay Capital Gain Tax.

For most forex traders in the UK, CGT is not a significant concern, as their trading activities typically result in relatively small amounts of income. However, suppose you are making large amounts of profit from your trading activities. In that case, it is essential to be aware of the rules and regulations surrounding capital gains tax to avoid paying higher rates.

If you are a forex trader who earns less than £50,270 per year, you will pay 10% on any capital gains you make from selling assets. If your annual income exceeds this threshold, you will pay 20% on any capital gains you make.

Several things can impact the amount of CGT you may owe when selling an asset. For example, whether or not the asset was considered a business asset can affect how much tax you pay on any profits from its sale. Additionally, certain reliefs may be available to help reduce the amount of CGT you owe when selling an asset for a profit.

Suppose you are a forex trader in the UK and are concerned about how capital gains tax may apply to your trading activities. In that case, speaking with an experienced tax advisor who can help guide you through these complex rules and regulations is essential. With proper planning and understanding of CGT rules and regulations, you can ensure that any profits you make from selling assets are subject to the lowest possible taxation rates.

There are three tax categories for forex traders in the UK when we talk about CGT:

  • If you are a part-time spread betting trader, you are tax-free.
  • If you are a forex trader that total income and annual capital gains are less than £50,270, you are subject to a 10% capital gains tax (CGT).
  • If you are a forex trader that total income and annual capital gains are more than £50,270, you are subject to 20% capital gains tax (CGT).

Forex trading Tax amount in the UK (Examples)

  • Example 1: You trade forex (CFDs) using a forex broker. You made £11,000 profit at the end of the year. You will not pay tax because you have a £12,300 tax-free CGT allowance.
  • Example 2: You trade forex (CFDs) using a forex broker. You made £21,000 profit at the end of the year. You have a £12,300 tax-free CGT allowance. So, in the future, you will pay a Capital Gains Tax of £870.
  • Example 3: You trade forex (CFDs) using a forex broker. You made £61,000 profit at the end of the year. You have a £12,300 tax-free CGT allowance. So, in the future, you will pay a Capital Gains Tax of £5,970 because for more than £50,270, you are subject to a 20% capital gains tax, while capital gains less than £50,270 are subject to a 10% capital gains tax (CGT).

Is Forex Trading Tax-Free in the UK?

Forex trading is not tax-free in the UK.  You are tax-free only if you are a part-time spread betting trader. However, if you are a forex trader, you are subject to capital gains tax.

Forex trading is not tax-free in the UK, as it is subject to capital gains tax. As a forex trader, you will need to report any profits you make on your taxes and pay taxes on them accordingly. However, if you are a part-time spread bettor rather than a full-time forex trader, you may be able to avoid paying taxes on your trading activity. This is because spread betting is typically classified as a form of gambling in the UK, which means that any trading profits you make may be exempt from taxes.

To engage in forex trading in the UK, you must be aware of your tax obligations and plan accordingly. You may need to work with a tax professional or consult government resources to ensure that you meet your reporting requirements.

Forex CFD tax in the UK

CFD forex traders are subject to a 10% capital gains tax (CGT) if their annual capital gains are less than £50,270 in 2023. However, yearly capital gains exceed £50,270, and CFD forex traders are subject to 20% capital gains tax (CGT).

Usually, forex traders use CFD brokers. So, for example, if you are a typical forex trader that has opened an account at a CFD broker and traded using the Metatrader platform, you are subject to capital gains tax (CGT).

Spread betting, in general, is not taxable, but the profits that the CFDs fetch you are taxable. However, things are not as black and white as they appear. Let’s explore this grey area further.

You will find three types of taxes in the UK. These are income tax, corporation tax, and capital gains. These three taxes, along with the kind of Forex trader you are, can decide how much tax you are liable to pay if you are trading Forex.

The first thing that needs to be done is the assessment of the trader’s status. Then, we will consider the instrument they are planning to trade and its intentions.

Remember that this article will give you a general outlook; assessing individual financial status can be tricky, and if you are unsure, you must take the help of a paid professional. You can hire a consultant or a professional accountant.

Status of a Forex Trader

Forex trading and exchanging Forex are two different things; in the latter, you might be doing it for short-term reasons like buying a product or service for individual or immediate consumption or traveling. However, if you belong to the former category, you will be doing it to profit. This is what makes you a trader.

There are two types of Forex traders. These are:

  • Short-time trader – Speculator

This type of trader wants to make a profit but has actual plans. They would spontaneously and occasionally put a trade. They do not have any consistency or a proper method behind their actions.

Gamblers or speculators mostly have a primary source of income that is not related to Forex trading. However, it could be a full-time job, and since any gains from trading are secondary or additional, they are not liable to pay any taxes they made via this side hustle. Hence, they will be doing tax-free trading in the UK.

  • The Investor

This is a serious trader, and mostly, trading is their primary source of income. An investor treats trading like a business. Since their primary income comes from trading Forex or activities related to Forex, they can pay taxes on it. It could be capital tax, corporation tax, or income tax. This will depend on individual profiles.

This clears up any confusion regarding the first point. Once you know whether you are a gambler/speculator or an investor, you will see if you pay the taxes. Although, this point alone cannot decide your tax liability. You need to consider the following two points as well.

Tradingdependss depends a lot on the instant that you are trading. Several instruments are available for trading, but there are two main options – CFDs and Spread Betting from a retail trader’s viewer point.

Let’s see how the UK tax system behaves with various trading instruments:

  • Spread Betting

It is simpler than CFDs. Of course, everyone can take advantage of spread betting, but it is a great starting point for beginners.

For spread betting, you need to understand the concept of pips. Here, you bet on the price direction at a certain per-point amount. For example, according to you, GBP/increase by £1 per/pip. So, you will bet in that direction.

Since this type of trading is similar to gambling or speculating, it is not considered capital gains tax.

  • CFDs

A CFD or a contract of difference is complicated but one of the most preferred trading Forex ways. Here, trades are sized according to ‘lots.’ Lot value can differ; for a primary currency, lot value is typically equivalent to $10/pip.

As a retail trader, you can easily find brokers who offer mini-lots. This will reduce the capital requirement from your end.

Trading in CFDs can incur additional costs like conversion charges. Since the base currency will depend on the underlying instrument you are trading, it will differ from your home currency. Therefore, your broker will charge you some amount for converting your profits and losses to your home currency.

For example, let’s assume that your house’s base currency is GBP, but you profit from the Japanese Yen. At the end of the trading day, your broker will convert your gains and losses to GBP, but you will have to pay conversion charges to them.

Spread betting is a short-term undertaking; it is tax-free. However, CFD traders are liable for forex trading capital gains tax in the UK.

Full-time trader vs. part-time trader

Another thing to remember before embarking on your forex trading journey is whether you plan on being a full-time or part-time trader. The amount of taxes you will pay will vary if you plan to work a full-time job and trade on the side, compared to being a full-time forex trader.

 

Part-time trader

If you plan on trading part-time, the amount you earn from spread betting will be considered a secondary income source. When this is the case, this income will be tax-free.

Full-time trader

It will be considered your primary income source if you plan on trading forex full-time. In this case, you will be required to pay income tax.

Conclusion

As a forex trader in the UK, it is essential to know the tax implications of your trading activities, particularly about Capital Gains Tax (CGT). Depending on your total income and annual capital gains, you may be subject to a 10% CGT rate or a 20% CGT rate.

To determine whether or not you need to pay CGT, it is essential to consider your investment strategy, the type of assets you trade, and other relevant factors. To minimize your tax liability as a forex trader in the UK and ensure that you comply with all applicable regulations, it is advisable to consult with a qualified tax professional or refer to government resources online.

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