Forex Trading: A Ticket To Vast Wealth?

Clearly, some people go into certain jobs, lines of work and professions for the expressed purpose of making buckets of money. Whether this is sound logic in any context is an open debate; in the context of Forex trading, is it true?

The short answer is "yes and no". It is quite possible for high-performing traders and wealthy hedge funds to earn big in Forex. That said, in most instances involving average traders, Forex trading provides a risky road to riches; moreover, the potential to lose big if a trader bets big is ever-present.

Bloomberg reported in 2014 that, in the case of two companies, 68 per cent of Forex traders experienced a net loss in the previous four quarters. So, one-third didn’t lose money and two-thirds did. Does this mean that one can accumulate vast riches trading currencies? In the context of this figure, currency markets were hit with some major developments. Most dramatically, in early 2015, Switzerland’s central bank ended the franc's limit of 1.20 versus the euro. This resulted in the franc increasing in value by 41 per cent versus the euro and by 38 per cent on the U.S. dollar – in one day.

This is one example of why it is unlikely that retail traders who think they can strike it rich in Forex will do so:

Too Much Leverage:

Major shifts in the value of currencies of the magnitude of the Swiss franc in January, 2015 are unusual, but currencies are turbulent at times. An excellent example is the euro going from 1.20 to 1.10 against the U.S. dollar over one week represents a change of

Risk-Reward Imbalance:

There’s almost no change that a Forex trader will never run a loss; the key is to manage the losses (i.e. keep them small). Ideally, the losses are counter-balanced by profits. The mistake that many traders make is taking small profits and never giving up on a loser.

Imperfections in the platform/system: Most traders assume that their trading system will work when they want it to work. But, there are instances where a trader may be prevented from selling because of a platform snafu or system slip-up (i.e. electricity goes out, internet is down).

Imperfect Information:

The larger an institution is, the more likely it has more information about markets, world events and politics than the average Forex trader operating out of his home that. That is why technology is helping a lot like automated systems, Forex trading signals, expert advisers Etc

Major Upswings and Downswings:

Major leverage can result in major depletion of funds during a period of uncertainty.

Forex is an over-the-counter market:

Being an OTC market, does not mean that centralization and regulation exist as they do in futures. Since trades in Forex are unguaranteed with a clearing organization, there is increased counter party risk.

Manipulators and Fraudsters:

There are documented instances of fraud in Forex. Additionally, market manipulation in Forex has touched large institutions. Four large banks were fined almost $6 billion U.S. because of efforts to manipulate exchange rates.

Key Conclusion

Forex trading requires capping leverage, sticking with stop-loss orders and employing a Forex brokerage worthy of your trust.