If you’re someone who is looking to try your luck at forex trading, your primary question might be, “Can you get rich by trading forex?” The answer to this question is a tricky one. If you’re lucky to have a pocket that runs deep or if you have impeccable trading skills, the answer is yes. On the flip side, if you’ve not got enough knowledge about trading and cannot afford to lose capital now and then, the road to riches might be rocky.
The most vital thing to know is that Forex trading, or any trading in general, does not guarantee profits. To trade forex is an acquired skill, a continuous process of patience, learning, and earnest efforts.
Getting rich by trading forex is not a guarantee, but it is not an impossibility either. By being mindful of the trade tricks and understanding how to minimize the loss, you can stand a chance to make money with forex trading.
What does Forex Trading Entail
Forex, a short form for Foreign Exchange, is a global market where currencies trade. According to a report, trading worth trillions of dollars takes place each day over the Forex market. Currency pairs are traded in an over-the-counter (OTC) manner. All the trades take place via the internet around the globe. Hence, there is no centralized place for trade exchanges.
The forex market thrives 24 hours a day and has major centers in cities like New York, London, Tokyo, Frankfurt, etc. There are different sessions throughout the day where trading for different markets take place.
The prices of the currency pairs keep changing throughout the day. Not to forget, the forex market is highly prone to changes due to several factors. Due to such volatile nature of the market, it becomes even harder to make profits and get rich by forex trading.
Some Instances of Significant Losses In Forex Trading
Forex trading is not for the faint of heart. It consists of unforeseen turbulences that can put the market upside-down. Given below are some of the famous instances that prove just how unpredictable and substantial the losses can be.
JP Morgan Chase
This financial giant lost almost $6 billion in 2012. This was due to a series of ruthless transactions involving the CDS (Credit Default Swap) in their London office. It was said that it was caused by an apparent “hedging strategy,” which resulted in huge trading losses.
Swiss National Bank
One of the world’s biggest banks, The Swiss National Bank, left traders shook to their core when they removed their 3-year-old cap. This cap was removed without any prior warning from the franc as against the euro. British company Barclays, FXCM, retail investors, and large banks were some of the many losses due to this move.
Millions of dollars were lost instantly, which brought everyone in the forex trading market to a standstill. FXCM, one of the biggest forex brokerages in the US, was moved to the very edge of announcing bankruptcy.
Unforeseen events are only one of the risks that stand in the way of all forex traders. Many other mistakes can work against your favor when you’re looking to get rich through forex trading.
How To Minimize Losses During Forex Trading
While you cannot control certain factors beyond your control, you can take careful measures to minimize the losses. Here are some of the common mistakes that you should avoid ensuring that you have a successful trade.
Not Being Fit For Forex
You might be enticed by reading about how profitable the forex market is, but hold your horses. This type of trading can be profitable only if you have prior knowledge or money to spare.
Forex trading involves a high risk of losing the capital that you invest. This can be very tricky if you can’t risk losing your hard-earned money. Investing money in forex by taking loans, borrowing money, etc., is a fatal mistake that should not be made.
Not Having Realistic Targets
You might have set an unrealistic aim in your head about making exuberant money by trading forex. While in reality, you might not be knowing the inherent risks involved in forex trading. Forex trading requires years of practice and skills to have a successful trade.
You will be disappointed if you step into this trade, thinking that it will be a smooth road to riches. It might require years until you start noticing that your trades are earning you money. Therefore, it is vital to set goals that can be met.
Not Having Prior Education On Forex Trading
This is one of the biggest mistakes that can come in the way of making money on forex. If you enter the market without any knowledge about it, you will likely never make money on forex trading.
Expecting to make millions out of forex without knowing the market’s nuances is as good as trying to run before you start walking. You guessed it right, it does not end well.
You need to invest your time and energy in learning all about the trade, educating yourself from the very basics to the advanced concepts. It will help you analyze the market and make informed decisions when you trade. It is a continuous learning process; to get on top of the game, you need to climb the knowledge stairs.
Not Having A Trading Plan
You might get confused between having a “trading strategy” and a “trading plan.” It is vital to know the difference between the two and device a careful trading plan.
In simple words, a trading strategy will help you decide when to enter and when to make an exit during trading. You can base the entry rules on any fundamental or technical analysis of the market. While during exit, you want to ensure that you limit risks using “stop-loss orders” and know when to take profits (take-profit-orders).
Not having a good strategy can end up in you, losing any profit that you made. A trading plan, on the other hand, is a little more complex than this. You need to take some time and device a plan which will ensure your growth and minimize any risks that you might face during trading.
Having Exorbitant Leverage
You might have heard about Leverage as being one of the best trading tools. It gives you a chance to partake in markets in which you couldn’t have traded otherwise. However, you need to realize that Leverage is a double-edged sword. It can go either way, incredible profits and drastic losses.
The more your Leverage, the higher your loss can be. Therefore, never be tempted to have excessive Leverage during trading. It might give you a decent gain, but it can also manage to wipe out your capital quickly.
Not Having Any Risk Management Rules
Making money on forex isn’t easy. You need to have certain rules in place. If you want to ensure that you get gains from the market, you need to minimize your losses. This cannot be possible without having proper risk management rules chartered out for you.
You should never ignore the stop-loss order. If you do, you become vulnerable to get swinged to the force of the market. To avoid this and to retain your position, never forget to utilize the stop-loss order.
Not Knowing When To Cut Losses
Forex trading is an art that can be perfect by years of learning and analyzing. If you see the trading tricks of the game’s experienced traders, you will notice how they know just when to cut their losses. They control their loss when it’s considerably small and use it in a manner that gives them gains.
You should know when to back out of the trade. Holding on losing position for a longer period is not a smart move. Forex trading doesn’t work on hope. It works on calculative moves. You need to avoid adding capital on losing position in hopes the market will change.
Hoping for a chance without any bases will only result in you losing your money. Avoid this by knowing when to cut your losses and secure your profits.
Not Having A Trustworthy Broker
Lastly, a bad broker can shatter your dreams of becoming rich by trading forex. Some brokers are not trustworthy. They lure people to trade with them instead of making quick money. In reality, they might not have legitimate trading experience and have a bad track record of trades.
You must thoroughly ensure that the broker you choose is experienced and knowledgeable. You need to check if they’re regulated and authorized. Not to mention, you also need to check which trading platform they offer you. This can make or break the deal.
Below you can find our comparison of who we currently consider the best forex brokers
Forex trading is an intriguing way to earn money. It has its own set of challenges and risks, but it can also give you enough chances to make money. If you avoid the common mistakes mentioned above, you can have a more structured trade to help you take home a bag full of cash.
By undertaking extensive learning, having a trustable broker like IC Markets or eToro, chalking up risk management rules and practice, you can make profits and get rich through trading!