Have you ever heard that a majority of forex traders lose money? It seems like a damper on most beginners’ desire to get rich fast because it doesn’t look as advertised. But can retail forex traders make money?
Retail forex traders can make money. However, traders need an in-depth knowledge of the market, be patient, and have a robust trading plan. They should control their emotions and work with a reliable broker. Most importantly, they need massive capital if they want huge profits.
In this post, you’ll learn about the essential factors contributing to making money on forex. We’ll also elaborate on why many forex traders fail.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
Can You Make Profits on Forex?
Forex is the most liquid market globally, tempting many wannabe traders to get rich in no time. However, according to statistics, the odds are against retail traders. 71% of retail forex traders lose their money, and 99% of traders keep losing for over four consecutive quarters.
But it doesn’t mean you can’t become a successful forex trader. Many traders have achieved financial freedom only by trading forex. Besides financial freedom, Forex trading lets you be your own boss, work from anywhere, and choose your working hours.
However, all of these come at a price that you must be willing to pay. The more you put in, the more you get out.
How To Be a Successful Forex Trader?
Whether you swing trade, day trade, or make long-term investments, you have to be ready to take risks. The forex market can be highly profitable and risky at the same time. The first thing you should consider is getting ready to lose. Every forex trader may (and will) lose. After that, you should consider other factors to help you make money.
Put in Enough Capital
You may have heard of traders who started small and grew their capital into millions in a short while. While these stories may be true, they’re rather exceptions than rules. For every successful trader, there are thousands of others who blew up their account.
You could start trading forex with 100 bucks, but don’t expect to turn it into a fortune quickly. It’s a dream that many brokers sell beginners to trick them into trading with them. You’ll blow up a couple of accounts before you become a profitable trader. Plus, many professional traders believe you shouldn’t risk more than 20% of your capital. So, with 20 dollars, it will take decades for you to earn a considerable profit.
Now, let’s see how much you can earn by trading forex. Suppose you can earn an average of 20% profits (which is big) a year. With a $100 account, you’ll make an average of $20 a year. Not so promising, right? That’s why your trading capital plays a significant role in your profitability.
Use Price Action
Price action is how the market behaves over a specific course of time. You should watch the market closely and act accordingly. Also known as signals, it’s a significant part of any trading strategy that indicates market psychology.
Knowing the market trends helps you decide on entry points, buy and sell, and determine profit targets. It gives your trading a direction that hopefully leads to profits.
Improve Your Trading Edge
Most retail traders don’t have a trading edge over other traders. A trading edge is anything that can help you gain an advantage in the trade or gives you insight into what trade is profitable. It simply puts the odds in the trader’s favor.
You can use anything, from the risk/reward ratio to the pre-and post-trading activities and routines. The strategies you define for your trades, risk management techniques, price action strategies and even the way you handle losses and wins are all components of trading edge. It’s a full package of factors that you can master gradually.
The key is to be patient and not expect to become an expert in no time. Take a step at a time and expand your skills steadily.
Be Patient
Forex trading isn’t guaranteed money. There are many different risks involved that make profitability a touch-and-go situation. So, you shouldn’t rely on forex trading for a living, at least until you become steadily profitable.
It doesn’t mean that you can’t earn a living by becoming a full-time forex trader. Instead, you shouldn’t leave your full-time job to become a forex trader. If you need the forex profit to pay your bills, that will put you under devastating pressure. Trading is a stressful venture, so you shouldn’t make it worse by depending on it.
Invest the money you can afford to lose, pay your dues to learn the trade, and gradually grow your account to earn enough profits.
Why Do Retail Forex Traders Fail?
So, what’s the most critical factor that leads forex traders to failure? Here are the most common reasons:
Having No Trading Plan
The most critical tool in trading is a well-thought strategy that fits your needs and goals. A strategy provides a framework that dictates every trading move. Through your trading strategy, you determine how much capital you should risk, how many trades you should expect to win, and many more.
Unfortunately, many trading novices fall for scams that promise trading strategies that combine a few indicators and naturally don’t work. A well-structured strategy comes with a full understanding of the market, fundamental and technical analysis, and watching market trends for a long time.
Even if they have a robust trading plan, they fail to stick to it. These beginners give in to their emotions and trade based on fear or greed after loss and win. Or they don’t have enough discipline to work their plan. Either way, they set themselves up for huge losses, which is the most important reason why forex traders fail.
Risking Too Much
Even if you have the best strategy, it doesn’t guarantee prolonged success. Even the most professional traders fail at some point. Inexperienced traders get over excited when they see their strategies work and risk too much. That’s a fatal mistake that can wipe out your entire account. If you risk too much and face a drawdown period, you may lose all your money.
Overtrading
New forex traders, mostly encouraged by brokers, tend to trade too often to generate more revenue. They think trading means buying and selling all the time, and if they aren’t buying or selling, they’re not trading. However, if you want to be profitable, you need to plan and wait for the right opportunity.
As a retail forex trader, you should tolerate being out of the market, although it’s contrary to what most people think of profitable trading.
Picking the Wrong Broker
Most beginners don’t realize the role of a good broker in their success. While a broker can’t lead to your profits, the wrong broker leads to your failure. Some brokers trade against their clients or charge too much slippage or commissions that greatly reduce their chances of making profits.
Plus, they encourage you to overtrade by bombarding you with technical indicators and offering advanced trading platforms and educational webinars. So, make sure the broker is a reliable and true ECN to minimize failure due to broker scams.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
- Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.
- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
- Best Trading Courses You Can Take For Free (or at extremely low cost): I reviewed 30+ trading courses to recommend you the best resource, and found Trading Strategies in Emerging Markets Specialization on Coursera to beat every other course on the market. Plus, if you complete this course within 7 days, it will cost you nothing and will be absolutely free! Click Here To Sign Up Today! (If you don’t find this course valuable, you can cancel anytime within the 7 days trial period and pay nothing.)
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Conclusion
Forex trading comes with many risks and opportunities to earn money. However, it’s difficult to make money because many factors are involved, and traders make many mistakes. You should consider your risk/reward ratio and win rates to decide how much profit you make a year.
The most important factor contributing to your high profits is your investment capital. Like most trading platforms, you get out what you put in. While you can start trading with 100 bucks, you won’t make much at the end of the year.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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