So, can you get rich by trading forex?
Well, the answer to that question really depends on who you are and what you determine as ‘rich’. For the general retail trader that opens an account with no prior experience or training, the answer is an unequivocal ‘No’. But for traders with knowledge and understanding of the market the answer is without a doubt ‘Yes’. There are two sides to the fence on this debate and you’re either successful or not.
The best way to answer this question is look at some raw statistics and who better to go to than Bloomberg News. An article they published in November 2014 noted that based on two of the biggest retail brokers at the time (Gain Capital & FXCM), 68% of traders had a net loss from trading in the previous year. That means almost a third of traders did not lose money but that’s as far as the statistics go so, we don’t know if they actually got rich!
Trading forex as a retail trader with the best forex prop firms can be a tough job especially if you don’t know what you’re doing. Many retail traders question the profitability of professional traders. But what they forget is these professionals spend several years learning their craft before launching. Most of that learning is done as a full-time employee with trading firms or banks. Where they have the fortune to hone their skills as a full-time employee with a large salary.
Here are five areas that experienced professionals crush and retail traders just don’t get and they basically determine who gets rich and who doesn’t.
1. Knowledge & Understanding of the Market:
Experienced traders know when it’s a good time to trade and when it’s a good time to avoid the markets. Most retail traders turn on their screens at the end of the day or when they have a spare moment and just start trading without a thought of what’s going on in the market. This is madness and it impacts most retail traders.
2. No Information or Live Feeds:
An experienced professional trader will not trade without direct feeds to live news, economic data or announcements. This is the life blood of the market and if you know what to look for will guide you into the best trading opportunities.
Unfortunately, most retail traders depend on forex factory or FXStreet where the data is released 2-5 minutes late as they don’t have live feeds. They have no idea of what’s going on in the market and hence often walk straight into high volatility and get whipped out of positions before they can blink.
3. Capital Management:
This is the true secret to getting rich trading forex! You need a strong capital management system that protects you in drawdown and expands when you’re making money. To the experienced professional this is the be all to end all, your complete business plan, and everything emanates from it. Your trade size, entry levels, stop loss and take profit levels.
Everything comes back to capital management. But hang on a second, you ask a retail trader “what is capital management and is it important?” and the answer will invariably be “No idea, what is it?”. They unfortunately think a capital management system restricts your trading potential. But that is so untrue and it’s a shame because that’s why most retail traders don’t get rich. They may make a few bucks here and there but without a solid capital management system you’re not going to get rich anytime soon.
4. Trade Execution Problems:
Most of the trading systems retail traders use are clumsy and difficult to transact quickly, MT4 point in note. Professional traders either use advance trade execution software like Traders4Traders trade execution software, that enhances your performance using MT4 or they use something else more sophisticated.
One of the issues I’ve seen is it’s too hard to enter stop loss and take profit orders on MT4 when you enter the market so many traders don’t even use stop loss orders! That’s where the craziness comes in and it’s another leading reason why 68% of traders lose money. No stop loss means big losses baby!
5. Inverted Risk to Reward Ratios:
Professional traders collect their trade statistics religiously. Because it’s one way they can really refine their trading strategies and see where they are going wrong and right. One stat they focus on very closely is their Risk to Reward ratio (it should be the other way around, but it just doesn’t sound right). Professionals are looking to maintain and get their Reward to Risk ratio as close to or above 3:1 all the time. This ensures longevity and goes a long way to isolating the best opportunities where they have a high probability of success with a low risk profile.
Once again you mention this to the general retail trader, and they have no idea. They trade 1:1 at most and generally risk 4 times as much as they intend to make. It’s Russian roulette on an epic scale. One bad trade can wipe out a week of solid trading and usually that’s all she wrote!
The Bottom Line – Can you Get Rich by trading forex?
Absolutely, but before starting, invest in yourself and get some professional forex training. Learn how to manage your capital and control the leverage you use, make sure you use stop loss orders, get access to a professional news service like Metastock Xenith, use a consistent daily trade routine and find some professional trade execution tools. The odds will then be stacked in your favor and you’ll not only be able to make a living from trading but also get rich!