Forex trading has made traders billionaires, but they had unusual skills or hefty hedge funds. An average trader will find the road to riches bumpy with potential destitution due to enormous losses. The odds against FX trading are high and an average trader needs to understand if he aims to get rich in FX market trading.
Limitations of getting rich in FX trading
Currencies are volatile. Besides, the attraction in the currency market lies in the margin leverage Forex brokerage platforms offer. It can magnify the gains, but remember if the price moves against you the losses can be more than the amount you initially invested.
On some foreign turfs, leverage is more than 200:1. It means if the price moves in your direction your earning gets increased 200 times, but if you lose the amount will be 200 times more than you invested. Excessive leverage is a gigantic risk factor in FX trading.
Misappropriate risk to reward ratio
Experienced FX traders keep losses small and mitigate them with sizable gains whenever their prediction goes right. Several trader’s approaches are to earn small profits with multiple positions in a short time instead of holding a losing trade for long. It can cause the trader to lose more than what they invested in the start.
You opened a large position, but system failure keeps you from closing the trade. Platform malfunction can be due to internet overload, computer crash, or power outage. During, exceptionally volatile conditions the stop-loss order will not work and can dry your investment.
Banks and Government have a massive influence on the FX trading market. It has an information edge, which is not accessible to an average trader.
The FX market is not decentralized and unregulated. It is an OTC marketplace like futures or the stock market. It means FX trades are not guaranteed or supported by any kind of valid agencies, which can cause counterparty risk. It means one involved may default on the contractual obligation.
Excessive leverage degree means trading capital gets quickly depleted due to unfamiliar currency volatility. A sudden event can move the marketplace before the traders get a chance to respond.
How much can one earn in FX trading?
New traders need to first learn how FX trading works. ADSS offers them an opportunity to open a Forex Demo Account and practice using virtual money. The platform even offers the members tools and resources to gain deep knowledge about trading before entering the live FX marketplace.
As there is a need for less capital to start as a day trader, the crucial aspect to consistent profitability is learning risk management. It means you risk as small as 1% or even less. For example, you can start at $2000 and will not lose more than $200 on one trade. It seems small but the loss will add up. A Stop-loss order is employed to manage the risks.
It is impossible to find 4 to 5 good day trades daily, especially when the market moves slowly for a lengthy period. Slippage results in large losses, even when using stop-loss order, and is unavoidable. Therefore, keep this in mind, while calculating potential net profit.