Forex Trading Goals
I think it is fair to say that most people are first drawn to forex trading because they see this as a means of getting rich, and to be fair, this is not an unrealistic goal because if you are successful, you can easily grow your capital quite substantially thanks to the effect of leverage and compounding.
Indeed when people search for terms such as ‘make money online’, forex trading is often cited as one of the easiest and most realistic ways of becoming financially independent.
The Dangers of Forex Trading
The reality is somewhat different because it is well known within the industry that most traders will ultimately end up losing money. The figure that is often quoted is 95%, but IG recently revealed that 79% of their traders lose money, which is still quite a high number.
Another real risk is that even if you do have a profitable strategy and are able to make consistent returns for long periods of time, you could still lose most or all of your capital with a few overleveraged trades that go horribly wrong.
We all think that this will never happen to us because we will only ever risk 2 or 3% of our capital per trade, but it is very easy to abandon our usual rules, withdraw a stop loss and hold on to a trade for too long if we are very confident about a particular trade, and this is where your capital can rapidly disappear.
I remember reading about a currency trader in the UK who managed to turn an initial deposit of £10,000 into over £250,000 by using a lot of leverage and taking some high risk trades that ultimately paid off, but eventually his luck ran out and after a few big trades started to move against him, he went on tilt and ended up losing nearly all of this £250,000 trying to chase his losses.
Lessons To Be Learned
The key lesson to be learned from this poor guy’s experience is that you shouldn’t just keep all of your winnings in your trading account in an attempt to keep on growing this money over and over again because it is so easy to go on a losing run and experience heavy losses when market conditions change.
If he had withdrawn £150,000 or £200,000 from his trading account, for example, he could have invested this money wisely and guaranteed himself a regular income in the form of dividends (if he had invested in stocks or funds) or rental returns if he had invested in property.
Plus he could have made long-term capital gains if these investments appreciated in value over time, but after gambling with all of his profits, he no longer has this option and has to start all over again with virtually nothing.
Invest Your Profits Wisely
So the key message I want to get across is that if you are skillful enough to generate decent profits from your forex trading, don’t forget to withdraw and invest some of your winnings along the way.
By doing so, you will protect yourself from any heavy losses and will actually be able to secure yourself an additional income stream, which is very important because even if you are profitable now, there are no guarantees that you will continue to be a profitable forex trader in the future.
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