We hear from time to time about the stories of some forex traders in which they claim to have achieved great wealth in a short period of time, and how currency trading has guaranteed them a luxurious life.
However, you’ll notice that most of these online stories end with a link to opening an account with a forex broker, or even buying a trading system that the owner claims has superpowers.
Although common sense dictates not paying attention to such marketing tricks, the details of these stories will inevitably make us think about the truth of the matter.
The question that will arise in one’s mind after reading these advertisements is whether forex trading alone can make him into the ranks of the wealthy. In this article, we will try to reach a clear answer to this important question, while presenting the evidence that supports our argument.
How to get rich
Before we decide whether a forex trader can really become a rich person by investing in the currency market, we first need to define what ‘get rich’ means. There is a great discrepancy in the definition of a wealthy person.
For example, a person who earns the equivalent of $50,000 in a third world country can guarantee himself to live in a comfortable material and social level. On the contrary, this amount will not be sufficient in the United States or Western European countries to rise to the ranks of the wealthy, as this person will be classified at best in the middle-income class. Over the past few years
the criteria for categorizing the rich have also changed, as a person needed only $1 million in his bank account to hold this title. However, due to the effect of inflation, sitting among the wealthy now requires the provision of a cash surplus that exceeds this number.
According to a survey conducted by brokerage firm Charles Schwab, the richest person in the United States should own more than $2.40 million. This number may vary slightly depending on the country in which the forex trader resides. But in any case, in this article, we will use this figure, i.e. $ 2.40 million, as a minimum for classifying a trader in the category of wealthy people.
Any discussion of forex is not without the idea of getting rich. In general, working in the field of financial trading is the preferred choice for many who want to build their own wealth by taking on some of the risks associated with working in this field. The same goes for currency traders, as the forex market offers unparalleled opportunities to get rich, at least in theory.
Even in practice, there are no major restrictions on capital requirements, trading time, or the profits you can make. In addition, the leverage offered by forex brokers, although it is a double-edged sword, is not available to the same extent as in other financial markets. These facts encourage novice traders to buy into the idea of getting rich quick.
Unlike the world of traditional business and investment, making profits from forex trading does not require a large amount of time. This particular reason is one of the most prominent reasons that make the idea of building wealth popular as soon as any discussion about Forex is touched upon.
Get rich from forex trading
Of course, you can get rich by trading currencies. But this dream cannot be achieved overnight. It can take many years for an individual trader to grow his small account by accumulating profits. There is also a possibility that you may lose all your money. This prompts us to ask about the ideal capital that you should start your forex trading business with. Some forex brokers allow opening an account with as little as $1.
But in practice it is impossible to make any real income using this paltry amount. It is based on the fact that all traders, even the most seasoned ones, can experience a series of losing streaks which exposes them to the evaporation of their account in a short period of time. As a general rule, the trader’s loss on any trade should not exceed 2% of the capital.
According to this rule, a person trading 0.01 lots using 1:100 leverage and placing a stop loss order 50 pips from the entry point will need an initial capital of about $350. Working according to these parameters, but with a capital less than the mentioned amount, will necessarily lead to hitting the stop levels due to the dwindling of the margin. On the contrary, the risk of evaporation of the trader’s balance decreases in parallel with the increase in the capital he starts working with, but on the condition that he follows prudent risk management rules and chooses the appropriate size of deals.
Although saving $350 may be enough to start trading forex, converting this small amount into millions of dollars will be a near impossible task. In other words, increasing the initial capital will allow the trader to reduce the time and effort required to achieve their goal of becoming a ‘wealthy person’.
The explanation for this is that providing adequate capital means the ability to easily double trading volumes, which opens the door to reaching the required balance in a short time after achieving success in a few large deals. As long as the trader follows a conservative approach in choosing the size of the contracts, it will be easy for him to increase the account balance quickly, but on the condition that he saves a large amount to start investing.
Based on the above, we can easily imagine that someone who starts his forex trading journey with a capital of $2 million will be a few steps away from achieving the dream of getting rich. On the contrary, starting with $10,000 will take many years of profitable trading to get you close to being rich. It is no different even if you start with $100,000 (which is the minimum for trading in the forex markets before the year 2000) because the trader will also need to spend a lot of time and effort in order to be able to turn this amount into profits in the millions.
All of the above can be summarized by saying that the initial capital allocated by the currency trader plays a major role in his chances of