This is because, on the surface, forex trading seems like a glamorous way to make money in a short period of time.
Well, while the question may appear simple enough, the answer isn’t quite so cut-and-dry. Alternatively take a look at our other article: Can I really make money with binary options?
In fact, if you want the best explanation for this query, you will need to go through the information below.
Can I Become A Millionaire Too?
The most appropriate response to this question would be: yes, but…
As you can see, there is a condition to this answer. This is because, in an ideal world, you could become a millionaire by trading forex. Unfortunately, this is not likely to happen for the average trader. Now, your reaction to this may be – “but what about those millionaire forex traders you hear about?”
And yes, there are a few forex traders who have managed to earn millions of dollars, just by trading forex (and none of them were beginner forex traders).
These, however, are far and few in between. Once you have a better understanding of how forex trading works, you will see why this is.
Why Is It Difficult to Become a Millionaire?
Now, let’s take a look at some of the reasons why it is so tricky to become a millionaire through forex alone:
- Not Enough Capital: for you to make greater profits on each trade, you will need more capital to start with. You will probably need tens of thousands of dollars, probably more, to make your dream of being a millionaire a reality. This isn’t realistic for most individual traders.
- Additional Costs: every trader has either commissions, spreads, or fees to deal with. It is not unusual for these costs to start to eat into your profits, greatly reducing how much you are able to make with each trade.
- Losing More Than Intended: forex trading does have a few safeguards in place to prevent too much of loss with each trade. Nevertheless, even when you utilize these, there is always a chance of you losing some money with a trade.
- Volatility: currency markets can be uncertain. It can be difficult to be a 100 percent positive of the direction that a currency pair can move in. Not to mention, the global situation and other factors can cause a currency pair to suddenly be quite volatile.
- Choose the right broker: only sign up with the most trusted forex brokers.
How Much Money Can You Make with Forex Trading?
Now, it has been ascertained that it can be tricky to make millions through forex trading. Therefore, the next logical question is how much can you make with this form of trading. As mentioned before, your total possible income with forex trading depends on several factors. These are:
- Starting Capital: to make a lot of money, you are going to need a lot of capital. With forex trading, you actually don’t require much startup money. Still, if you are going to want to make more money with your trades, you are going to need more money.
- Trading Percentage: it isn’t just your overall capital, however, that is relevant. How much you can earn with any trade will depend on the percentage of your capital that you will be risking with each trade. This will determine how much you can potentially make with any one trade.
- Leverage Used: you can always tap into leverage to add to the amount that you want to place on your trade. So, if you find a broker with leverage that you can afford, you can potentially end up making more on that trade.
- Trading Strategies: of course, at the end of the day, it really depends on how good your trading strategies are. A better strategy will allow for more winning trades, thus increasing the money that you make.
How to Be a Successful Forex Trader
Just because you can’t be a millionaire forex trader doesn’t mean that you can’t be a successful trader. There are plenty of traders who make enough money to survive and some make considerably more than that as well. Here is how you can manage a similar situation for yourself:
Follow the 1% Rule
Forex trading does carry a certain level of risk. This is why you need to limit the amount of money that you can lose on a trade. To toe the line between risk and reward, you should avoid risking more than one percent of your total capital on any one trade. This prevents you from losing more than you can afford.
Always Have a Trading Plan
You should never trade without a trading plan. See, a trading plan will allow you to identify the right points to enter and exit the market. It will also give you some idea about how much you should trade and what strategies to use. In short, it can increase your chances of winning.
Use Leverage Wisely
Leverage does allow you to buy a greater amount of currency than your capital allows. At the same time, it has also proven to be the downfall of many a trader. While leverage can magnify gains, it can do the same with your losses. So, use it wisely and always stay within your means.
Utilize Stop Losses
As a trader, you should realize that stop losses are one of the most powerful tools in your arsenal. As long as you use it appropriately, you will be able to significantly reduce how much money you can lose on a trade. So, always set the right limits for every trade and you will be able to come out of most trades relatively unscathed.
Now, this article may have not provided you with the answer that you wanted to hear. Of course, this is because it is not a realistic notion to have if you want to be a successful forex trader. So, while there is certainly a chance for you to make money with this form of trading, it is not going to be easy as you expected. Not to mention, you may not be able to make nearly as much money as you hoped. Nevertheless, if you are true to your craft and are a wise trader, you can be a lot more prosperous than you can imagine.