Forex or Foreign exchange is one of the hottest investment products out there and many online will have stumbled across adverts promoting over-the-counter Forex products. But many ask a perfectly legitimate question, can you really make money trading the foreign exchange markets from the comfort of your home? You will find many resources and websites online which will answer this question in the affirmative and make bold claims regarding the amazing returns you can make from trading Forex, however it is not quite as simple as this. Answering this question is not as simple as it may at first seem, of course there are a number of retail traders who are very successful. But the more important question is whether an average Joe with little trading knowledge or experience can expect to make money from trading.
There is no good data in regards to what percentage of retail foreign exchange traders in fact turn a profit. There have been suggestions that maybe only 10-25% of retail foreign exchange traders turn a profit which demonstrates just how difficult it can be to make money trading. Should be these glum figures put you off trading Forex? In my opinion these statistics should make you seriously consider whether trading is in fact for you.
Why do so many retail Forex traders lose money?
I believe there are a number of reasons to why such a high percentage of retail traders lose money trading. Firstly, many new traders who are attracted to trading see Forex as something akin to a get rich scheme which will see them making huge returns without much effort. This is completely the wrong conception of Forex trading, in my personal experience trading the markets with real money at stake is one of the most demanding and stressful things you can do. A second factor which leads to many new traders ultimately losing is that many newbie and even some relatively experienced traders lack the relevant education to really understand trading. Many traders who start out may learn a bit about technical analysis or buy a trading system, without properly understanding how to use the system or the technical analysis they have learned. Technical analysis is a very nuanced and interpreting whether indicators are giving you could buy or sell signals can be quite difficult. At my blog I attempt to guide traders through some of the basic of technical analysis with the aim to helping people avoid making mistakes. The third major reason why I believe so many fail at Forex trading is that a certain temperament is needed to successfully trade the markets.
One must be level headed, able to deal with considerable stress and be able to deal with the considerable highs and lows that traders have to deal with. This third reason is the one which I feel is the most difficult to provide to a solution to, as it appears to me that some people are simply not suited to Forex trading. Here I want to echo the sentiments of Paul Belogour who in the FinancialTimes stated “But I say to customers: if this is money you have worked hard for – that you cannot afford to lose – never, never invest in foreign exchange.”
Making money with SocialTrading
Social investment and trading are generating a lot buzz on the internet and the main reason is that they seem to give people who don’t have the knowledge or ability to successfully trade Forex the possibility to make money from the markets. Social trading networks allow users to piggyback on the success of other traders meaning that an individual doesn’t have to personally trade the markets in order to make money from them. While social trading does seem to offer individuals a way to make money from the markets, there is again little data in regards to what percentage of users end up profiting. My personal experiences with social trading have been good, but social trading does still involve picking which signal providers to copy thus bringing in an element of skill. Social trading does seem to have the potential to allow those who are not cut out to trade the financial markets the possibility of making significant returns. However as with all forms of trading there is a significant amount of risk. You also might want to take a closer look at various types of auto trading software, since they provide varying levels of automation and manual actions.
It is certainly possible for retail traders to make money from trading the financial markets and I count myself lucky enough to be one of those in the minority who have had success with trading the Forex markets. Financial trading is a complex and challenging, many jump into Foreign exchange trading without having the necessary knowledge or experience. Those interested in trading should make sure they get adequately acquainted with the necessary information to fully understand the workings of the Foreign exchange markets. I also suggest that those interested in trading make use of demo accounts and get in plenty of trading practice, treating those accounts as if they were real money accounts. For some Forex trading is going to be a great opportunity to make a side income or grow an investment portfolio, others would do well to steer clear of trading and seek alternative lower risk investments.
Published on behalf of Ed Martin, the author and owner of the Forex website The FX View. He has been writing about over-the-counter trading for the past two years.