Forex trading is an easy way to get rich.

No it is not!

The meme is such that 90% of the retail forex traders lose their money. Forex trading is arguably a zero sum game where one’s profit is another’s loss. Then, you might wonder how 90% lose their money. If one wins and another loses, you would theoretically assume that 50% of traders would become profitable while the other 50% become losers. But, it is not the case in reality. There is another type of forex traders known as institutional traders who are small in numbers but they trade much larger volumes; they typically include large financial institutions such as big banks and large hedge funds. It is a fact that institutional traders are the traders who move the price. They often move the prices in such a way that ultimately hunts the stop loss levels of most retail traders causing them to lose their money. So it is the institutional traders who ultimately grab the money of the retail traders.

You can learn forex and become profitable in a short period of time.

Well, it is extremely hard if not impossible.

Although the time you need to learn and become profitable in forex can depend on many factors, typically a newcomer may take between 2 to 5 years to become profitable in forex trading if he or she is to learn forex trading and become profitable by manual trading.

You can make a high return from forex trading.

This can be true but on the other hand, it involves higher risk.

In USA, if you deposit your money in a bank savings account you would typically get around 2.5% annual return; in other words it is 0.2% return on investment per month. If you trade stocks in US stock markets, the typical return is around 10% a year. In other words, it is 0.8% return on investment per month.

However, forex trading involves more risk than stock trading, and therefore, the required return in forex trading should typically be more than the stock market returns. In our experience, most of the professional forex traders typically aim at an annual return of at least 25% per year.

 I can easily make a living out of forex trading.

It would largely depend on the investment.

You can, of course, make a living out of it but you need to understand the typical returns that we discussed earlier; Even if you are to make 50% annual return (which is unlikely) or in other words 4.2% monthly return and you need $2500 per month for living, then you still need to have an investment around $60,000.

I can be profitable every month if I have a good strategy.

No. It is very unlikely.

Most professional forex traders we know may have 1 to 3 months in a year where may lose but still stay quite profitable at the end of the year. Losing streaks are common in trading irrespective of how good your strategy and how experienced you are in trading.

I need to maintain a good win ratio to become profitable.

No. It is not necessary.

The profitability and win ratio are not always correlated. You may have a strategy where you win only 10% of the time but still, be profitable if your wins are big enough to cover the losses. So, the win ratio is not the best way to determine the profitability of an EA or system. It is the potential return that you would make at the end of the year that matters.

There are robots that make consistent high monthly returns.

This is highly unlikely.

For instance, let’s assume that you are offered an EA for $500 that is said to make a 25% return per month. should you buy it? Well, this claim is too-good-to-be-true and it is very likely to be a scam. 25% per month means a 300% annual return which is not realistic at all in the long term. Your EA may have such a win ratio for a few months especially if the EA is using risky strategies such as martingale, hedging, or grids along with luck in your favor, but things can get horrible in no time when you get out of luck. On the other hand, if you make a 25% return a month, by investing just $1000, you could reach $138 billion in 7 years beating Jeff Bezos to become the richest person in the world! Well, if you had such a system, would you even tell anyone about it? let alone selling it for 500 bucks!

Common myths about forex trading – truth & reality about forex trading

Leave a Reply

Your email address will not be published. Required fields are marked *