The forex market is one of the most alluring financial markets in the world. People gravitate towards the forex market from all corners of the world, but it sometimes can be quite misunderstood. In this article, we take a look at the realities of the forex market and what traders can do to raise capital and win big in the forex market.
The Lure of Profits
The forex market trades around $5 trillion every day, a number that is three times higher than the rest of the financial markets combined. There is little wonder then as to why there is such a huge attraction of forex trading for people.
Even though there is a fall in global transactions, the forex market attracts a huge user base as the entry barriers are as low as $25, and people get free training for it. Those who have the necessary knowledge for forex trading and an internet connection, the lure of profits remain high on a relatively small investment.
However, the risk associated with it should be considered as well. Many people think that forex trading is a quick-fire way of amassing a lot of money with very little investment. They believe that just by getting a trading program, they’ll be able to beat the market, which is why they also eye trades bigger than their wallets can manage.
But, that is a huge error of judgment as more than 90% of traders end up losing money when they start trading. Those who believe that forex trading will allow them to turn their fortunes around overnight are in for a sobering reality check.
The Legend of the home runs
The legends of people making millions, sometimes billions of dollars in forex trading are all over the web. But, people who have managed to make such ground-breaking trades are not your run of the mill traders; they are some of the best in the business. Some of the top traders include the likes of:
- George Soros
- Peter Schiff
- Jesse Livermore
- Nick Leeson
These traders had perfected their craft and only then were able to manage such ‘heroic’ trades. But, those who haven’t reached the peak of their game and are still in the first few stages of learning, they should not wish for such ‘heroic’ trades to simply fall into their laps. That is exactly what leads to people (unsuccessfully) chasing trades that are way beyond their grasp or understanding and end up burning through their account.
Most successful traders are hard workers. They educate themselves about the craft of forex trading, trade with stop-losses, have multiple trading systems to work out their entry and exit points, and even then they may end up losing a fair bit. But, they are also consistent and persevere with their craft and eventually end up making a little profit. Only through these little profits are they able to compound their earnings and can call themselves successful traders.
A few virtues that every professional trader will invariably have include patience, discipline, objectivity, and having realistic expectations. These do not come about overnight and take years of dedication, hard work, understanding, and experience. Only then forex traders are able to make money from their trades, that too in the long run.
The real ways to go bigger
Not everyone is endowed with a big trading account, especially if one is a beginner. It may not be prudent to risk big amounts of money straightaway. However, if you want to go big, bigger capital is required. So, how does one increase the capital that one can trade with? There are three ways that this can be accomplished, which include personal savings, proprietary trading, and raising funds from investors.
Improving one’s personal savings to be used in forex trading is the most obvious way of making bigger trades in the market. This will require you to pool in your income from your other investments, such as real estate, dividend stocks, savings accounts, etc. Granted that doing is easier said than done but only when you have the wherewithal will you be able to trade bigger. However, with bigger trades, the possibility of risk also increases, so it is not recommended that traders increase their position every time they have extra capital at their disposal.
Traders and brokers can also raise capital by executing forex trades using a proprietary trading platform. Traders can work with more capital when they work with proprietary trading firms. Traders work as solo traders in these firms and take home a cut of what they make as proprietary trading firms don’t give much of a base salary. The challenge here is that proprietary trading firms do not usually provide much capital or a better profit share unless you have a good track record in forex trading.
The final way by which you can raise capital is through ultra-high-net-worth individuals (UHNWI) and online investor marketplaces. To allow UHNWI to give you their idle cash, you need to be in their good books and trusted by them. The challenge here is to come into collaboration with them, so they don’t have to fear that you’re going to run off with their money. The best way to do so is to work as their employee and set up trading accounts in their company’s name.
Online investor marketplaces are an excellent place for traders to raise trading capital. Traders can raise capital with the help of investors or by winning contests at these marketplaces (examples: Darwinex, Alpari PAMM). The main challenge here is to have a good track record as a forex trader and build up a rapport by interacting with other traders and investors.
Though the forex market is quite liquid and the lure of big earnings does attract a lot of people, there are certain misconceptions that beginner traders should steer clear of. Not only do they give a false impression of what to expect, but they also provide a false mindset for the process of forex trading. Those who want to earn big should put in the hard work that is associated with being a professional Forex trader.