Making money is difficult, as any retail trader who attempts to trade the markets quickly discovers. According to pure statistics, the majority of retail traders will never succeed financially over the long term. So, can small retail forex traders profit?
Retail traders can indeed profit. It is not simple, though, and in order to succeed as a retail trader you will need a plan, a lot of time, and some patience. In actuality, it can take you several years to develop into a consistent retail trader, but once you do, it will be well worth the wait!
Let’s look at the reasons why most traders lose money and how you might thrive in the markets. Why not take advantage of the fact that you can do things as a retail trader that institutional traders cannot?
Why do most retail traders not make money?
The failure of traders can be attributed to a number of things. Some of the most typical ones are included below.
No actual trading plan
Your trading strategy is the single most crucial instrument in trading. The trading strategy specifies how much risk you should take, when you should enter and exit deals, and should ideally be tested using historical data to show that it has been successful in the past.
Many novice traders think they have a plan in place as soon as they write down some guidelines they have heard of. Even though that is a trading technique, it is unlikely that it will be successful in live trading. There are many trading ideas and notions that are presented as successful trading techniques on the internet and, to a lesser extent, in books. The sad fact is that very few of them actually function as they claim.
Combining a few indicators and providing some examples of how you should trade is a simple chore for the so-called “trading gurus,” who do not know how to trade but nevertheless teach.
Unfortunately, a lot of rookie traders fell for these tricks and begin trading useless products! I think it is better to have a trading plan that is designed for your own trading style. Even then, you will need good discipline to ensure that you stick to it to try and avoid making silly mistakes.
Take unnecessary risks
Therefore, let’s imagine that you have a trading method that is effective and that you want to get the most out of it. When you understand that you have something that is successful in the markets, it is simple to become excited. In their excitement, many novice traders commit a deadly error that almost certainly spells the end of their trading career.
They begin taking excessive risks.
In truth, even the strongest method you can find will have a period of downturn, or a string of unsuccessful transactions. This tiny dip in the market curve might possibly bankrupt you if you take on too much risk! That is why it is important to have good forex money management.
Trade the markets based on opinion
You shouldn’t ever attempt to force your will on the market since it will not obey anyone. Even though it might seem obvious, most aspiring traders ignore this advise, and the reason is very straightforward.
We are inundated with trading-related information when we search online, which will undoubtedly start to alter our perceptions of what is achievable and how trading should be carried out. We are ignorant of how these prejudices effect us until we attempt to capitalize on the markets by using them.
You might increase the size of your stake until the risk of losing all of your money becomes unacceptably great, for instance, if you have heard that you can double your money in the market every year but only make 30% in your first year.
Or you might continue using a failed trading strategy because you believe one indicator should behave a certain way.
In trading, letting the market show you what works and what doesn’t is always the best course of action. Be prepared to discover frequently that what you once believed to be the best course of action actually performs better when entirely turned upside down.
Trading before they are ready
Like most people, traders have a propensity to overestimate their aptitude. This frequently leads to traders going live far too early in trading. It is unreasonable to anticipate being able to make a lot of money straight away while trading because it requires extensive training.
This is why it’s a good idea to start trading on a demo account first. Then, if you start to consistently generate money, you can start trading with a little amount of money and gradually increase it as your experience increases.
Giving up too soon
You will experience hiccups along the way as you learn about trading. This is really upsetting because there are frequently no conclusive solutions to the problems you are experiencing.
It is understandable why the idea of quitting up occasionally crosses your mind when you combine this with the reality that you are mostly always dealing with things on your own.
Profitable traders, however, are unsuccessful because they did not encounter problems. They succeeded because they worked hard to overcome their obstacles.
The drawbacks of being a retail forex trader
As a retail trader, you are up against larger trading firms and individuals with far more expertise than you. As if that weren’t enough, you lack the financial and human resources that trading companies and hedge funds do. Hedge funds with a lot of cash pay quite well, which frequently succeeds in luring the best minds in the sector.
But if you start cooperating with other traders, this problem might be somewhat resolved!
Taking up the fight against rivals who appear to be ascendant might be discouraging. You actually do have a chance, though!
The advantages of retail forex trader
There are benefits to becoming a retail trader even when you lack the financial might of hedge funds and trading organizations! A retail trader with a lower capital will be able to join and leave the markets without having advanced order planning in mind while hedge funds struggle to enter positions without moving the market with their enormous trading volumes. Given that you trade in adequately liquid markets, your trading volume is simply too little to have any discernible influence on the price of assets.
You will be able to benefit from market inefficiencies with a smaller capital than the bigger competitors can because of their sheer size! As a result, there are several advantages and trading methods that you may employ in your trading that the institutional traders will never pursue!
Being a retail trader also spares you from having to answer questions from investors about why you do certain things. If you continually feel like you are being watched by people who have no idea what you are doing and call you as soon as they see that their investment is not moving in line with their naive perception of reality, running a hedge fund can become annoying.
Conclusion: can forex retail traders make money?
As a retail trader, you can make money, but it won’t be simple. Even when it seems impossible, you will need to overcome your preconceptions and persevere. Despite the numerous challenges that come with working for yourself as a retail trader, you do have several benefits over the bigger institutional traders. However, you will need to spend many months learning as much as possible about forex trading and practice trading on a demo account until you start seeing some consistent results.
Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me.