Can You Get Rich Trading Forex?
There’s a lot of hype online about forex trading, but can you actually get rich trading forex? Long story short, the answer is undoubtedly yes, but it’s not going to happen overnight and you’re going to have to work hard – are you up to the challenge?
In this piece we will discuss what you need to do to become a successful forex trader, exactly how people get rich trading forex and why you should trade with a respected, Australian regulated broker like Vantage FX.
What’s a realistic annual goal?
Going forward we’ll assume a successful trader can earn an average of 50% per annum – we believe this is a reasonable figure – We’ve seen plenty of traders make a lot more than this each year and we’ve seen plenty make a lot less. If you break the year down into weeks, 50% a year is quite realistic: you need to make an average of 1% per week for the entire year (give or take a couple points).
Let’s assume you take two trades per week, risking 1% per trade, aiming to make 2% off each trade and you get 50% of your trades right – at the end of year you will have roughly:
- 50 losing trades, losing 1% each (-50%)
- 50 winning trades, winning 2% each (+100%)
- A net profit of +50%
Of course the reality is a little more complex, as net profit depends on the order in which your winning and losing trades occur, but that is far beyond the scope of this piece.
The power of compound interest
Compound interest has been described by many as the 8th wonder of the world. Compound interest makes people rich and then it makes them richer, and richer and richer. You get the point. Compounding returns is the secret to making big money in forex and like any investment strategy, this requires patience, discipline and a solid risk management.
What’s compound interest? Okay so you start off trading at Vantage FX with $10 000 and earn a 50% return in your first year, you now have $15 000 to trade with. In your second year you make 50% again, you now have $22 500. In your third year you make 50% again, you now have $33 750. Do you see what’s happening here? Even though you only ever made 50% in a year, your annual profit is growing in dollar terms.
Okay, so how much money would you have after 10 years of trading like this? $576 650. Don’t believe us? Type the numbers into a calculator yourself: 10000 x 1.5^10 = 576 650. Not too shabby for an initial investment of $10 000 eh? The following year you make 50% again – that’s a little shy of $300 000 in a single year!
This brings us to our next point …
Note it took 10 years in the above example before the trader started earning serious money. If you are serious about trading and really want to make serious money, you need to be serious about how much you are going to invest. By all means, practice on a Vantage FX demo account and move on to a $500 account once you’re confident, but at some point you must be willing to start trading a larger balance and risking larger sums.
Maintaining discipline and managing greed
Saving up a serious investment isn’t the hard part, young people save up amounts like this all the time to buy cars or go holidaying in Europe. The hard part is going to be managing your greed and maintaining discipline. Note we said managing greed, not ignoring it. If you really want to be rich, then do what it takes to be rich. Greed on a short time span blows accounts, commitment and dedication applied to achieving a long term profit goal changes lives.
The biggest temptation you will face is risking too much on a single trade, this changes lives too, but rarely for the better. In general you should never risk more than 2% on a single trade – the trader in our original example only risked 1% – if you risk 2% per trade you can shave 5 years of your long term profit goal, but you should also be prepared for twice the drawdown. Risk tolerance varies between person to person, but no matter what level of risk you decide to trade with, pick a level and stick with it. The ability to stick to a solid risk management plan is what sorts the winners from the losers.
When your account is down 10% it is really tempting to try and risk 10% on the next trade and earn it back. Don’t. This is short term greed talking. What happens when you lose the 10% trade? Risk 20%? Before you know it you have barely have half what you started with. Pick a level of risk that is safe and you are comfortable with and stick with it. This warrants repeating: devise a solid risk management plan and stick to it. Stick to it when you’re winning, stick to it when you’re losing. Devise a solid risk management plan and stick to it.
The importance of trading with a reputable regulated broker like Vantage FX
All the risk management in the world won’t save you from a bodgy bucketshop broker. Do you really want to grow your account from 10K to 200k, only to find your broker’s website just disappeared the day after you requested a 50K withdrawal?
Vantage FX is an Australian regulated ECN forex broker. We don’t trade against our clients, we make money when you make money. We want you to win. Don’t waste your time and money trading with forex brokers “regulated” in Latvia, Estonia or Timbuktu – you can and you will get burnt!
If you are serious about getting rich from trading, trade with a serious broker … otherwise you may as well just send your money to that prince who keeps emailing
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