Forex Trading: Why Do So Many Traders Lose
If you have spent much time on the internet you will probably have come across websites promoting Forex as a get rich scheme. The reality however is very different with around 70-90% of retail currency traders ultimately ending up losing money. This has led many to conclude that FX, is some kind of scam as less than half the people involved in trading actually end up turning a profit. I personally disagree with this, but I do think that there are a number of reasons why the majority of people end up losers. In this article we are going to look into some of the reasons behind the shocking fact that the vast majority of retail Forex traders lose money.
There is no really definite reason why the majority of retail Forex traders end up losing money, however a number of commentators have come up with several plausible hypothesis which could help explain the facts. Firstly, the fact that many traders are massively under capitalized is one important factor which contributes to their demise. If you accept that Forex is a fair game then those starting with more funds will be far more likely to come out on top. Add in the fact that many traders are using huge amounts of leverage and it shouldn't be too shocking that the majority of retail clients lose cash. If someone enters a trade leveraged 100:1, it would only take a one percent move against him for his whole account to be wiped out. Many traders are using leverage in excess of 100:1, partly because they don't understand that leverage can work against them as well as for them. It is recommended that all traders restrict the amount of leverage that they use, even experienced traders should make sure they don't over expose themselves.
Another reason why many retail customers fail to make cash is that they lack the proper education that one should get before dabbling at Forex trading. The FX market is one of the world's biggest and most competitive markets, and many people don't fully appreciate this meaning that they jump into trading far too early. Those interested in Foreign Exchange should make sure that they spend a significant amount of time getting to grips with the world of FX before jumping in. It is strongly recommended that newbies spend at least six months honing their skills on a demo account before trying out trading for real. Lack of education is one reason why may retail clients up losers.
There is no really definite reason why the majority of retail Forex traders end up losing money, however a number of commentators have come up with several plausible hypothesis which could help explain the facts. Firstly, the fact that many traders are massively under capitalized is one important factor which contributes to their demise. If you accept that Forex is a fair game then those starting with more funds will be far more likely to come out on top. Add in the fact that many traders are using huge amounts of leverage and it shouldn't be too shocking that the majority of retail clients lose cash. If someone enters a trade leveraged 100:1, it would only take a one percent move against him for his whole account to be wiped out. Many traders are using leverage in excess of 100:1, partly because they don't understand that leverage can work against them as well as for them. It is recommended that all traders restrict the amount of leverage that they use, even experienced traders should make sure they don't over expose themselves.
Another reason why many retail customers fail to make cash is that they lack the proper education that one should get before dabbling at Forex trading. The FX market is one of the world's biggest and most competitive markets, and many people don't fully appreciate this meaning that they jump into trading far too early. Those interested in Foreign Exchange should make sure that they spend a significant amount of time getting to grips with the world of FX before jumping in. It is strongly recommended that newbies spend at least six months honing their skills on a demo account before trying out trading for real. Lack of education is one reason why may retail clients up losers.
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