Can Forex Trading Make You Rich?

Can forex trading make you rich？ Although our instinctive reaction to that question would be an unequivocal “No,” we should qualify that response. Forex trading may make you rich if you are a hedge fund with deep pockets or an unusually skilled currency trader. But for the average retail trader, rather than being an easy road to riches, forex trading can be a rocky highway to enormous losses and potential penury.

But first, the stats. A Bloomberg article in Nov. 2014 noted that based on reports to their clients by two of the biggest forex companies at the time—Gain Capital Holdings Inc. (GCAP) and FXCM Inc.—68% of investors had net losses from trading currencies in the prior year. While this could be interpreted to mean that about one in three traders does not lose money trading currencies, that's not the same as getting rich trading forex.

• Many retail traders turn to the forex market in search of fast profits.

• Statistics show that most aspiring forex traders fail, and some even lose large amounts of money.

• Leverage is a double-edged sword, as it can lead to outsized profits but also substantial losses.

• Counterparty risks, platform malfunctions, and sudden bursts of volatility also pose challenges to would-be forex traders.

• Unlike stocks and futures that trade on exchanges, forex pairs trade in the over-the-counter market with no central clearing firm.

Note that the Bloomberg numbers were cited just two months before an unexpected seismic shock in the currency markets highlighted the risks of forex trading. On Jan. 15, 2015, the Swiss National Bank abandoned the Swiss franc's cap of 1.20 against the euro that it had in place for three years. As a result, the Swiss franc soared as much as 41% against the euro on that day.

If you still want to try your hand at forex trading, it would be prudent to use a few safeguards: limit your leverage, keep tight stop-losses, and use a reputable forex brokerage. Although the odds are still stacked against you, at least these measures may help you level the playing field to some extent.

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