Can Forex trading make you rich?
Forex trading is not any scheme for a person to become rich quickly. As in any other professions, it is difficult to excel or become a millionaire overnight with Forex trading. Forex trading can make you rich only if you are a hedge fund owner with a great financial background or if you are extremely intelligent or unusually skilled at currency trading. For an average Forex retail trader, it may throw up a rocky path where he should be ready to face enormous losses initially or till he gets the tricks of the trade.
Also the markets are highly volatile and can fluctuate overnight leading to huge losses. Some of the reasons to prove that newbies are more susceptible to losses in the Forex trading market are
Excessive Leverage – Even though one is aware of the fact that currencies are volatile, violent gyrations which can add up to make you bankrupt overnight are not uncommon in the Forex forum market
Asymmetric Risk to Reward ratios – Most of the traders try to make small profits by holding a number of positions and in this way they tend to accumulate several holdings for a long period of time which may increase losses. Seasoned Forex traders on the other hand, try to keep their losses small and offset them with gains whenever a currency pair increases in value.
System Malfunction – If you happen to hold a large holding in some currency which is falling in value and you are unable to sell it or close the position due to a system malfunction, it can be quite difficult as you may incur huge losses in a couple of hours.
Lack of Information – Banks are one of the biggest Forex traders. Even though they have huge holdings in most of the currency pairs, they often have access to first hand information from Government agencies or commercial establishments which can help them to close the position faster leading to reduced losses. Retail traders on the other hand suffer due to a lack of such information.
Currency volatility – most of the seasoned traders are aware of the currency volatilizes in the Forex markets which keeps happening from time to time. High degree of leverage is another contributing factor to the depletion of trading capital in such difficult times.
OTC Market – Forex is an over the counter market that is not centralized unlike the Futures market. The trading in this market is thus susceptible to counterpart risk. All these factors substantiate the claim that Forex trading cannot make you rich.