I have come across this question multiple times in different forex sites and forums. I know the instinctive reaction by most traders and experts would be an unequivocal no to this question, but this response ought to be qualified. If you have deep pockets or you are a hedge fund or even a major bank with exceptional trading skills, you can make millions out of forex. However, the chances of the average trader making millions on forex are very small; even with the best online broker. This is often supported by the statistics that are provided by each of the brokers website; that have to be declared as part of their regulation process.
According to a Bloomberg survey carried out in 2014, close to 70% of all traders are not profitable. As much as there are a few hedge funds and traders that make millions in this space, to the vast majority, it is still a rocky path with a tragic ending. The way the FX market is structured, the odds are against the average retail trader who wants to make it big in forex. So how do you work against the odds, grow your account and possibly be among the few profitable traders?
Don’t treat forex as a get-rich-quick scheme
Forex trading is not the easy-way-out to making it quick in life; you need to address forex trading like any other form of investment or business. Making it in this field will require some patience, control over yourself and continuous learning. You will also need to manage your capital since your capital is your stock, and without stock then a business is doomed to fail.
Take advantage of the compounding factor
Often referred to as the eighth wonder, the compounding interest lets your money work for you. In the words of Albert Einstein, “compound interest is the eighth wonder, he who understands it… earns it, he who doesn’t understand pays it.” The most potent factor a retail trader has on his side is the compounding power. From a small account, one can build his way to a million dollar account with regular, consistent trades. You need not make huge gains; all you need are small but steady gains.
Taking advantage of the risk to reward ratio
Seasoned traders will always strive to keep the losses small while allowing the profits to run. A series of small losses can be recovered by one sizeable gain. This is not the case with many retail traders; they do the exact opposite. They cut the profits short and let the losses run, holding onto losing trades for too long that a single bad trade ends up wiping an account.
By applying the above principles, you are still not guaranteed of a level playing ground. Trading banks and hedge funds have better information edge as compared to the average retail traders. They have massive operations plugged into the FX market giving them an advantage over the smaller traders. However, by applying the above principles to a certain extent, the playing field will somehow level. Other safeguards include keeping the stop losses tight, limiting the use of leverage and getting the right brokers. Always remember forex is a risky venture with the possibility of losing your entire account, remember only to invest an amount that will not give you sleepless nights if lost.
With any type of trading, it’s critical to ensure that you are working with the right broker. If you are just starting out, have a look at our best broker for beginners article and also top regulated forex brokers. In this section there is also a useful article around selecting the right trading platforms.