Can forex trading make you rich? While you might instinctively say no, there is actually a chance that forex trading might make you richer if you’re someone with a hedge fund and deep pockets, or you’re a very skilled trader of currency. But the thing is, for the average retail trader, rather than being easy to get rich, this can be a very rocky path with a bunch of losses and a lot of potential for screwing up.
This is definitely a potential market, but you need to understand that 68% of traders end up losing from trading currencies in the previous years. While this can mean that one in three traders won’t lose money, it’s not the same as getting rich. You have a third of a chance to get rich in this market, so remember that.
These number of course, are cited right before there are shocks in the markets, such as in January of 2015 when the Swiss National Bank abandoned the frank, so it had a much higher tradeoff because of it. Unexpected events are not one of the only risks. There are other reasons why this market is risky, and we’ll tell you why you should be careful of this.
While currencies are volatile, the violent gyrations like the frank as we mentioned before are incredibly common. The stocks, on the other hand, are easily traded up and down, but the thing that allures people to forex is, of course, the huge amount of leverage that brokers give you, which can magnify gains.
The thing is though, that can also magnify the losses too. For example, in some cases, you can end up netting a 416% profit if you trade in a short position with maximum leverage. But the thing is, if you’re in the wrong position, you can leave with a net loss of 25,000 because of this. That’s why, you need to make sure you know the market, and understand that.
The Asymmetric Risk and Reward
Because traders know to keep their losses small, they’ll often offset the sizable gains when the currency calls prove to be correct. Many of the retail traders do it the other way around and will make small profits in a number of positions, but then, they hold onto one and they lose a lot. The thing is, while you might win on some, one wrong move and you’ll be screwed, and this can cause you to lose more than the investment.
Finally, imagine if you have a large position and aren’t able to close on a trade because of a platform or system failure, which can be anything from a computer crash to a mere power outage, to even internet overload. This is definitely a problem, and this can oftentimes happen when stop losses aren’t in place. A lot of people might be doing this as well, but the thing is, if you can’t execute the trade, you’re going to miss out on this, so there you go.
You need to understand that while it can make you rich, there’s just way too many factors in this that you’re playing with. You also may not have the information edge, the currency volatility in place, and you might also want to look at the fact that this is an OTC market, which means that it’s not regulated.
So, while yes, profits can be gained, and there is potential, it’s very dangerous and it’s incredibly risky. You need to understand that you can get rich very quickly, but also lose it all again, very quickly. n