The short answer is yes and no. Yes, you can get rich when you trade forex if you are an exceptionally talented and skilled forex trader. If you are a hedge fund with vast trading capitals, you can also make a living or become filthy rich by trading forex.
However, you are not likely to get rich by trading forex if you are a small to medium-sized retail currency trader. In fact, if you are a small or average retail currency trader, you can lose a lot of money by trading forex and end up in huge debt.
Here are common reasons why it can be difficult to create significant wealth through forex trading:
- Forex trading is a high-risk investment primarily affected by market forces and unexpected events like market crashes, natural disasters, and pandemics. Foreign exchange market manipulation and volatility can hit your investment hard and suddenly. Traders lose money when trading currencies, but most of them are in it for the long haul.
- Forex traders can take excessive leverage of up to 500:1 or higher. That means a dip in a specific currency, even by a factor of 0.01, can be magnified by a considerable margin, leading to huge losses. Check benchmarks set forth by regulatory bodies like the Commodity Futures Trading Commission before you dive into it.
- The risk doesn’t match the reward – Professional currency traders and edge funds ensure their forex losses are small and cover those using profits from long gains. On the flip side, small-time and average currency traders tend to keep their gains small and hold onto losses for long. When all’s said and done forex trades carry bigger risk than the reward.
- System glitches and platform malfunction can affect forex trading – Platform malfunction, internet connection problems, computer hiccups, and other technical system issues can prevent you from cashing out or closing a winning forex trade.
- Lack of access to crucial market information – Unlike large hedge funds and big forex trading corporations, retail currency traders don’t have access to valuable information like government intervention, commercial forex flows, and so on. This info could give large traders an edge over their retail counterparts, who will end up losing money.
- Retail traders are more prone to currency volatility – Times of odd unpredictable currency volatility can exhaust the bankroll of small to medium-sized retail currency traders. These volatile events can happen quickly and move the currencies so much that your trading capital is depleted.
- Forex trading is largely unregulated and not centralized – Most trading options like commodities, stocks, and futures are highly centralized and regulated by government agencies.
- Retail forex traders are susceptible to market manipulations, and fraud, identity theft, and online scams are commonplace in forex trading. That usually happens if you trade on unregulated, overseas exchanges. Market movers can also use shady tricks like stop-loss hunting to manipulate the markets and make retail investors/traders lose money.
Are there successful forex traders?
Yes, there are successful forex traders, the majority of whom are large forex trading companies and hedge funds with significant capital. On the contrary, it is well-documented that nine out of ten retail forex traders are not successful, leaving only 10% to succeed. Recent statistics show that the percentage of successful forex traders could be as low as 5%.
No matter what the actual figures show, we can say for sure that there are successful forex traders. These wealthy and most successful forex traders include:
- George Soros – The Hungary-born billionaire George Soros is the most successful forex trader alive today. His net worth is estimated to be worth well over $8 billion. Soros once gambled on a forex trade in the UK, making him a staggering $1 billion in 1992.
- Paul Tudor Jones – Paul Jones is another successful forex trader with an estimated net worth of between $4 billion and $5 billion. He made most of his wealth by making intelligent forex trading moves during the market crash of 1987.
- Joe Lewis – A student of George Soros, Joe Lewis also made a killing during the dip of the Great Britain sterling pound in 1992. He is worth around $5 billion today, making him one of the wealthiest forex traders in the world.
- Stanley Druckenmiller – With a net worth of roughly $2 billion, Stanley Druckenmiller is one of the most successful forex traders. He is a close friend of George Soros.
- Bill Lipschutz – With a net worth of approximately $2 billion, Bill Lipschutz made his fortune by trading currency with Salomon Brothers in the 1980s.
Can forex make you rich?
Yes, forex can make you rich. However, you must have a good understanding of the risks involved in forex trading. Most people who succeed and become rich with forex are incredibly skilled and talented currency traders. They know the ins and outs of forex trading and currency movements. Forex can also make you rich if you run a hedge fund with fat trading accounts.
All in all, the answer to whether forex can make you rich is a resounding yes. Just take a look at millionaires and billionaires like George Soros and Paul Johnson, who made their fortune by trading forex. However, it is worth noting that more than 90% of retail forex traders don’t become rich.
How difficult is forex?
Although often seen as an easy way of trading, forex is actually difficult. However, here are top tips and strategies you can use to make forex trading easier and avoid losing money:
- Do your research – Yes, forex trading is easier to start. But it would be best if you learned the basics and advanced dynamics of forex trading and markets, including economic and geopolitical factors that might influence currency prices.
- Focus on risk management – Use risk assessment tools, software, and technical analysis to ensure that you understand and mitigate the risk involved in forex trading.
- Use proper money management practices – Set a budget, create loss/win limits, and stick to your trading strategy. You mustn’t try to chase or try to make up losses.
- Use demo or practice accounts to improve your trading skills and get to know the markets.
- Start small when you begin trading on the live account
- Be reasonable when using leverage
- Use trading journals to track and learn from your successes and losses.
- Understand the implications of tax and treatment of forex trading by the taxman
- Consider forex trading as a business, so keep your emotions in balance
- Create a trading strategy/plan and adhere to it
- Set, understand, and follow your forex trading goals
- Ensure you have edge information before you exit or enter a forex market
- Know your limits, and do not trade more funds on forex than you can afford to lose
Is forex trading illegal?
Forex trading is not illegal in most countries and jurisdictions. However, not all forex brokers operate legal practices, as they can commit online fraud, identity theft, and other scams.