Can you get rich by trading forex?
This question has seeped and probed its way into the minds of ambitious traders for the better half of two decades and it will continue to so long as the Earth keeps spinning.
While instinctively our gut is urging us to answer no more variables must first be expanded upon in addition to taking a step back to detach ourselves from the equation.
By doing so not only are we able to provide more scope but more importantly access contrast determinants that oftentimes whittle their way out of the equation concerning this age-old question.
With these truths in mind, let’s begin to address this question with an encompassing approach.
Forex Trading – The Startling Facts
We were quite surprised to discover from a multitude of sources that a little over 90% of forex retail traders tend to lose money.
While it’s true that you’ll find some reports indicating up to a 96% failure rate, as a whole it is widely supported that around 90% of retail FX traders fail to succeed when tackling the foreign exchange markets.
Quite honestly, this is a humbling statistic that must be taken under do consideration.
It doesn’t matter whether you are luckier or that you feel like you may have an edge because it’s you we’re talking about – this is a ground-breaking statistic that must be given respect.
When Vladimir Ribakov debuted within the forex exchange industry, he too became a part of the humility-generating statistic, wiping out multiple trading accounts – truth be told, however, we are lucky that he stuck it out and fought tooth-and-nail to get to where he is today because without his perseverance the FX industry would be greatly lacking one of the largest online trading communities and the leading FX educational service Traders Academy Club.
Which brings us back to the truth of the matter, should you be considering investing within the foreign exchange market it is imperative that you do not rush the process and that you establish a forex action plan (we will point out where you may find such a plan a little later on) that way when the time is ripe you can do yourself and others the courtesy of not becoming part of the 90% percentile.
The Dangers of Leverage
Leverage can be a forex investors kryptonite or absolute blessing.
In essence, it can be the single greatest factor that can make or break your investing.
Given that many forex investors have lost significant funds as a result of poor leveraging practices, regulators have taken it upon themselves to better monitor the application of leverage.
The fact of the matter still stands, however, that many forex brokers are still able to offer exponential leverage ratios of up to 400:1.
Risk Reward – A Non-Congruent Symmetry
The vast majority of retail FX traders tend to generate a series of small profits but have an uncanny knack of holding a losing trade for far too long which may result in a rather substantial loss.
Additionally, as many of you know, the holding of a position for too long can result in you losing more than your original investment sum – which no one wants.
On the contrary, experienced traders tend to mitigate their losses by negating losses through significant gains.
This creates a disproportion of adverse risk amongst novice day traders because although it is commonly preached that you should be seeking a volley of small profits when you get started with forex trading it is difficult for novice investors to understand the wisdom that experience brings, therefore, putting a novice investor at an immediate disadvantage when it comes to knowing the right time to exit a trade.
Influential Currency Pair Determinants
There are a seemingly incalculable number of variables that should be taken under due consideration before confronting the choppy waters of the forex market.
Factors such as interest rate differentials or the tendency of particular economies to exhibit more volatility than that of major economies.
An example of interest rate differentials that could affect the value of a currency pair is as follows:
Ex:) Let’s say you’re a trader looking to trade the NZD/USD currency pair. While you understand that the New Zealand dollar is a carry trade currency (meaning it tends to appreciate and serve ideally for more long-term investments when traded against a lower-yielding currency) it still leaves traders open to the risks of the interest rate differentials between two countries. Specifically, in this case, the Reserve Bank of New Zealand (RBNZ) and the Federal Reserve, where should the Federal Reserve interfere in the open markets in an attempt to strengthen the U.S. dollar it may result in a weakening of the NZD/USD as a whole because the natural cross-relationship and the inability of the New Zealand dollar to strengthen in comparison to the U.S. dollar is all but evident.
One way you can better gauge the influence of major economies would be by analyzing the stock market, which has been shown to reflect a strong relationship with the well-being of the foreign exchange market.
Should you notice the major world economies taking a hit, such as that seen during the 2008 Financial Crisis or during the Coronavirus Market Crash, then you can easily deduce that the foreign exchange market will likely be influenced similarly.
As we said there are a wide number of variables and they all play out in their unforeseen ways but these are two significant determinants to bear in mind.
Historic Yet Rare Market Manipulation
Generally, the foreign exchange market receives praise for its sheer volume.
We are guilty of this ourselves in our 7 Reasons Why You Should Invest Forex over the Stock Market publication, where we went on to reveal an advantage of how the FX market is less likely to fall victim to market volatility as a result of its astronomical size with respect to the stock market.
Nevertheless, however, manipulation can fester its way within the foreign exchange market causing a disturbance to the equilibrium of forex trading.
One such example of this would be the Secure Investment market manipulation that wiped out more than $1 billion of forex investor funds in 2014.
Why Forex Trading Won’t Get You Rich Quickly
I’m sure you’ve heard me preach this before but I’ll go ahead and say it again.
Forex trading is a marathon, not a sprint!
You should not be seeking involvement within the online day trading industry if you are solely seeking short-term gains.
More often than not you will not only crash-and-burn but you will do far more damage than good.
Unfortunately, many inexperienced traders commit with day trading with an increased emphasis on short-term gains over that of long-term prosperity than may be gained as a result of patience and educated investment decisions – it is a cycle nearly as old as time and will continue to unravel given the nature of us as a species.
The Answer and Bottom Line
The definition of rich varies from person to person.
As a result, becoming “rich” through the trading of the foreign exchange market can happen so long as your definition of rich coincides in congruence with the effort, resources, and may we even say the degree of luck that you rely upon when trading the foreign exchange market.
While the statistics don’t lean in your favor, if you can muster the courage and dig deep enough to put in the work that it takes to succeed within the foreign exchange market then not only can you significantly benefit financially and psychologically but more importantly, enrich the lives those around you.
Should you be uncertain where to begin please harbor us the benefit of the doubt and leverage not only our expertise but extensive collection of educational materials found throughout our site.
We take it as a personal endeavor to help traders become their own best success stories.
Feel free to visit our Guide to Profitable Forex Trading in 2020 or send an email to support@vladimirriribakov.com for more!
Tim Lanoue
Guest Author
