It’s very difficult to answer this question without getting real facts from a central source, which the foreign exchange market doesn’t have, fortunately or unfortunately, however you may take it. I am not very sure if you’ve heard of this before that 9 out of 10 traders lose their money. As far as my experience is concerned, this is true. I, myself, lost money trading forex in the beginning somewhere around 2009. Now, here’s the thing, forex, as many people might know, is almost a zero-sum game ( “Almost”, assuming commissions or spreads don’t exist). While you’re losing, someone else somewhere is winning. That’s how it is.
You might as well ask, “Why golf hasn’t produced many billionaires or why boxing or swimming or normal office jobs haven’t produced many billionaires?” Well, they have, actually, except that people look at forex differently. People doubt it and most treat it as a “get-rich-quick” kind of thing. They don’t even consider it as something that could potentially be a profession. Poker players even get more attention and “respect” while others even call forex trading “gambling”. Well, truth be told, if you’ve ever asked this kind of question, then forex isn’t for you. Even if it is, chances are that you’ll never become even a millionaire.
I know some forex billionaires and millionaires actually, though not personally, but Joe Lewis, George Soros, Michael Marcus, Bruce Kovner, Paul Tudor Jones, and Bill Lipschutz just to name a few, are some of the gurus who have made money trading in the foreign exchange market. All these folks have something in common — They see trends, they act and they are very disciplined. Let’s take one of them for example – George Soros.
George Soros is known as “The Man Who Broke the Bank of England”, (How I would love to have that kind of name!) is a special kind of trader who mostly traded fundamentally, to break the Bank of England. In one trade, he went short on the sterling to make a profit of $1 billion. One trade made him a billionaire already! From his quote here, it’s clear what kind of trader Soros is, and actually answers the question “Why Forex Trading Hasn’t Produced More Billionaires”
I’m only rich because I know when I’m wrong … I basically have survived by recognising my mistakes. I very often used to get backaches due to the fact that I was wrong. Whenever you are wrong you have to fight or [take] flight. When [I] make the decision, the backache goes away.
Most traders can’t even tell when they go wrong or accept their weaknesses and correct them. Emotions constrict them, eventually killing them.
Joe Lewis is a billionaire, he started trading forex in the 1980s and still buys and sells currencies. He’s a professional forex trader and he’s worth $4.7 billion as of this writing (probably more by the time you’re reading this). This guy is different, he takes risks and wins! Before starting to trade forex, he sold his family business. Would you have the guts to do something like this? I wouldn’t, because I don’t have any family business in the first place. But if I did, I would actually do it! I respect forex enough to call it my profession and this is what feeds me. 90% of forex traders won’t be billionaires because you know what, if they sell their family business, they would risk about 30% at least of their margin on a single trade. Now that’s suicidal. They lose. The problem here is, If I sold my family business or anything valuable at all to enter forex, I wouldn’t risk more than 1% of it on a single trade. That way I have enough margin to support me when things go wrong. I might make a losing streak but 1% risk would put me back in the game, then I would correct my mistakes (start keeping a trading log if you don’t) and move on.
If you’re fairly new to trading or a total newbie, I would advise you not to risk more than 2% of your capital at any point in time. No matter what. Sometimes you might think you know enough, but trust me, that “enough” is not enough. Make it a rule that you’re not going to risk 2% of your total margin. Stick to this plan and you’ll be on your way to becoming a better trader than you already are. Let’s say you start trading with a total of $1,000. 2% of this is $20, this buys you 1000 units of say USD/JPY standing (at the time of this writing) at 117.67 ask price. If I won 7pips, for example I would have $0.59 extra. For me, this is enough, for most traders this is sh*t and that’s exactly why they’d lose and why there aren’t so many billionaires as others expect. If I traded 10 times my capital, this would have been a $5.9 profit. Doing this consistently would be a good enough profit at the end of each month.
The few forex traders who are billionaires follow simple rules like these. They are not greedy, they take emotions out of this. They are disciplined and they know when they go wrong. They take note of bad decisions and correct them in the next trade.
I could go on and on talking about the special characters of the many forex gurus on the planet but I’m not sure how this would change you as a trader. If you have some spare time, Google them, learn about their strategies, and apply them yourself (It doesn’t have to be a real account). Maybe you won’t be a billionaire but then this question won’t even pop up in your head because half a million will be good enough for you I bet.
Wishing you all the best in your endeavors as a Forex trader.