Owning a lot of money and living luxuriously has been one of the most common goals on humanity's mind ever since money was originally invented. But, as you know, most people did not manage to achieve this.
Some people have managed to live a relatively comfortable life, although with a lot of work involved. Many live in poverty, barely making ends meet, and that doesn't only refer to developing countries. You may have heard that those who actually succeeded in getting rich are referred to as the "1 percent," and that is no coincidence. That is how many people around the entire world are considered to be wealthy.
But, the dream of joining this small group of fortunate individuals has never gone away, and people have been looking for new ways to get rich for thousands of years, now.
The newest way of doing so is through online trading and investment, and trading forex is one of the most attractive methods.
Foreign exchange, or Forex (FX) is the name for the act of exchanging one currency for another with the goal of making a profit. It is quite simple.
All you need to do is use your local currency to buy a foreign currency, hopefully — when its price is lower than usual. Provided that the selected foreign currency's price grows, you then exchange it back to the original currency you used, and end up having more money than what you had started with.
That difference between the amount that you entered with and the amount you exited with is your profit.
Now, the big question is — can you get rich by doing this over and over?
Can you get rich by trading forex?
You can easily tell from the explained process that trading forex is rather easy, and it is. However, trading forex properly —meaning, trading it in a way where you end up earning, rather than losing money — is extremely hard.
By researching the question of whether forex can make you rich, you will most likely learn that it can't. There are many who would claim otherwise, but the truth is that a few trades won't make you a millionaire.
It would be possible to turn forex trading into a way of earning money for your everyday life, but that is something that requires a lot of patience, a lot of learning, and a lot of strategizing.
The only people who can get rich quick with forex are institutional or wealthy investors, who are already rich, to begin with. These people can afford to enter trades with massive amounts, and if they win, they will be richer than before. But, it is important to remember that they were already rich when they entered. In other words, forex did not make them rich, only somewhat richer.
For you, a retail trader, the chances of getting rich quickly are slim to non-existent. But, you do have a chance of increasing your wealth by a little.
You see, forex trading is no scam or fraud. Of course, the market is full of scammers and fraudsters, so you need to watch out for those. But, forex trading in itself is legit. That is because it is simply too big for anyone to manipulate the market for long.
It includes people from all over the world, trading trillions of dollars’ worth of money on a daily basis, and there is no person or company out there that can tip the scales in a significant way for long, and without risking to lose everything they have.
So, from that point of view, yes, it is possible to use the market to your advantage and earn money. However, you likely won't be able to earn a lot of money, especially if you don't invest a lot of money first. But, with large investments also comes large risk, and it is not uncommon for people to lose money when trading forex.
One thing that you should always keep in mind when it comes to forex trading is risk. Forex is not like the stock market, where you can easily predict the price movements based on historic information, the time of year, specific company's partnerships, performance, reports, reputation, and alike.
Money has no reputation, partnerships, or quarterly reports, and the only thing that matters to forex traders is whether its value is going up or down, and that is based on supply and demand.
There are some factors, such as geopolitical situations, that can impact its value, but for the most time, you will simply keep an eye on the market and react to price trends, whether positive or negative.
But, with these price changes being very small most of the time, you will have to invest large amounts of money to make a profit that matters. So, what happens if you make the wrong move? Obviously, you will lose money.
This is the risk that comes with forex trading, just like with any other type of trading and investing. However, there are ways for you to protect yourself and your funds. While you cannot eliminate risk completely, you can at least reduce your losses as much as possible, and that is done by understanding risk management.
What is risk management?
Risk management is probably the most important skill that you need in order to trade forex.
You see, there are certain limitations that you get to set when you open a position and enter trade. These are safety mechanisms that will automatically close your position under specific circumstances. The trick is that you need to predict them and set them accurately.
What do we mean by that? Well, let's say that you wish to buy a specific currency and hold it until its price grows. There is a chance that the price will start dropping instead.
If you don't have these limitations employed, the price will go through its drop, and you will lose your money. However, if you do introduce these limitations, the price will still keep dropping, but your position will be automatically closed when it reaches the limit that you previously selected.
That way, if the price keeps dropping below the limit, you will only lose a small amount — the difference between the price the currency had when you entered the trade, and the price where you set the limit. The remaining drop is irrelevant to you, because you are out of the trade.
The trick is to place that limit low enough so that minor price fluctuations — which are happening all the time — do not reach it and trigger it. The price is going up and down all the time, and you don't want for these minor drops to activate the risk management tool and close your trade. You need to identify the level which minor fluctuations will not reach, but not go too far down so as to lose large amounts of money if the actual, large drop happens.
As a result, risk management tools, such as stop-loss, are the most important part of your forex trading arsenal. This is not something that you can learn once and use for the rest of your trading career. You must constantly keep an eye on the price and things that might impact it, and modify this security level accordingly. It is simply something that you need to keep tracking all the time, which is the only way to end up having successful trades.
Even then, mistakes happen, prices start moving in an unpredictable way, and you can still end up losing your money. This is why it is important to never invest more than what you can afford to lose. That means that you must never use the money for bills, food, rent, transportation, and other necessities, even if you think you have it all figured out, and that you know how the market will behave.
It is best to enter each trade with the assumption that you will experience losses. That way, you won't have to borrow money for bare survival, in case the trade goes wrong.
It is said that up to 90% of forex traders lose money while trading, which discourages them from continuing with the trades, and leaves them with losses, so keep that in mind.
Also, expect that there will always be bad trades, which is why you cannot measure your success in the short term. Basically, don't measure your success based on how much you earned on any single day, or even a week. Instead, do it on a monthly basis. Trade for a month, and then see if, at the end of the month, you have more money than what you had when you started. If so, divide your total profits by the number of days you traded, and you will get the amount you earn per day, on average.
If you are satisfied with the results, congratulations — you have become a successful forex trader. If not, then consider changing some aspects of your trading strategy.
Things to keep in mind when trading forex
Lastly, we would want to note some things that you should keep in mind about forex trading. For example:
- All forex traders lose money. This is inevitable, and even the professionals who have been trading for decades experience losses — sometimes for a single day at a time, sometimes day after day. But, patience and a sound strategy allow them to end the month with large gains.
- Trading forex is not for the unemployed. If you are unemployed, have low income, or credit card debt, do not think that trading forex will quickly bail you out. This is a process that takes a long time to perfect, and even then, you won't do it right all the time. Do not rely on it for making a living, as there is a lot, and we do mean A LOT of trial and error involved.
- Forex is not a get-rich-quick scheme. As mentioned before, forex is not a scam, nor is it a scheme. It is simply money exchange under certain conditions. It is up to you to exchange money when those conditions are favourable to you, and try to benefit from the process. that is all.
- Forex takes time to learn. This is something that you have to keep in mind. We said it before — this is a process that you will have to learn slowly. The only way to understand the market is to spend time in it, see how it performs, and in the meantime, learn about its past. See how it performs year after year, when are the prices usually rising, and when are they dropping, how specific events impact them, and alike.
- Do not enter unprepared. We cannot stress this enough. Entering forex thinking that it can't be that complicated is a sure way to lose everything you brought with you, and withdraw with empty pockets.
- Follow other investors and traders. There are people out there who have been trading for far longer than you have. Use that to your advantage. Of course, that doesn't mean that you should follow them blindly. However, their input can be valuable. There is no need to reinvent the wheel and learn everything from scratch on your own. Collect these tidbits of knowledge that experienced traders are dropping, and use them to advance your own position.
- Forex trading is not gambling. At least, not unless YOU turn it into gambling. Forex is based on facts, events, fundamental and technical analysis, all of which can be explained with tools and logic. You don't rely on blind luck to make a successful trade. This is something that bad traders do, and it usually results in losses. Learn about it until you start seeing patterns in market behaviour. Once this happens, then you will be ready to start.
- Trading with leverage can bring greater earnings, but it can also cost you a lot. Leveraged trading is something that exists in most types of trading, and it involves borrowing the monty from brokers and using much smaller amounts of your own money for trading. It can help you boost your earnings significantly, but it also leaves a lot less room for mistake. If you are a novice trader, we recommend avoiding it. Learn about it in case you decide to try it out someday, but do not use it until you are ready, and regular trading becomes tedious and predictable for you.
So, in the end, can forex trading make you rich? That depends. If you enter with $2,000m you will probably be able to make it to $100,000 in a few years, provided that you save your money, do everything correctly, and not take unnecessary risks. But, can it make you a millionaire in months? Absolutely not.
Not unless you are already quite wealthy, and able to go into trades with much larger amounts than a typical retail trader. Forex is not gambling, nor is it a miracle way of earning large amounts of money quickly and easily. It is a job that requires skill, knowledge, patience, discipline, strategy, and a lot of time dedicated to educating yourself, following trends, those who are more successful at it from you, and more.
So, don't enter forex with unreasonable expectations, just because some "online trading school" or an article on the internet promised that you can make millions with a push of a button. This is a complex market that even the most gifted traders needed years to understand, not to mention a lot of work and massive amounts of discipline.
ause some "online trading school" or an article on the internet promised that you can make millions with a push of a button. This is a complex market that even the most gifted traders needed years to understand, not to mention a lot of work and massive amounts of discipline.