Why Forex Traders Lose Money in Forex Industry
The percentage of traders that lose money is 95% based on research Contentworks and forex trading statistics. Public data have show 73%-95% of the broker’s clients lose money. There is always a big percentage of traders that are not profitable but are not losing traders as well.
So, how many forex traders are profitable? In the retail industry around 5%-10% and in prop companies around 80% of traders are profitable.
How many forex traders lose money?
Based on brokers’ available data, between 73% to 95% of all retail traders lose money trading forex. Many brokers publish this data on promotional banners so the public can see how many forex traders in percentage lose money.
See the example in the image:
In our article Can You Make Money Trading Forex? we explained the problem with a trader that lose money.
But what science says about retail traders?
In the article “Do individual currency traders make money” we can see that profitable traders exist in the currency market and daily traders as well. Risk-taking is problem number 1 for all retail traders (Uninformative Feedback and Risk Taking: Evidence from Retail Forex Trading )
The real question is – can retail forex traders make money? Of course, retail traders can earn as good as corporate traders only if they follow risk management rules. In practice, retail traders when managing a smaller amount of money (less than 1 million dollars) can achieve a bigger profit (bigger risk) than corporate traders. Risk rules and opportunities are not the same when you manage $10 000 and 1 billion dollars.
Experts claim that 95% of the forex traders make losses due to which they quit forex trading. The DailyFX forex website found that though some forex traders are making a profit, new traders still find it difficult to be profitable. Some of the reasons why most Forex Traders Lose Money are discussed so that new forex traders can avoid making a loss.
Understanding the market
Many traders are making the mistake of thinking that they can beat the forex market and make a large profit with little capital. These traders may be very aggressive in trading, go against trends, and lose money. Instead, they should understand the market, and try to make money from well-defined trends.
Low capital
Usually, traders start forex trading to make quick money or get rid of debt. Forex marketers often encourage these traders to trade with high leverage and use larger sizes of lots to make larger returns, using small initial capital. In the short term, a forex trader may get the high returns he is looking for. However, since the risk is very high due to the higher leverage, and less capital, traders often become emotional, and time their trades at the worst possible time, making a loss. Hence forex traders should have at least $1000 before they start trading, else they are likely to make a loss.
Managing risk.
Like in life, risk management is important if a forex trader wishes to survive. Skilled traders can lose their capital if they do not manage risk. The trader should first focus on protecting his capital before trying to make a profit. Once the capital is depleted, the ability of the forex trader to make a profit will be reduced. A recommended risk management practice involves placing stop-loss orders after the forex trader has made a reasonable amount of profit. The lot sizes should be small compared to the capital in the account, and the trader should exit trades that are not viable.
Please read more about this table below in our article about trading risk and risk management:
Being greedy
Some forex traders want to make the maximum profit possible from every move in the market. Traders who wait for the last pip before the rate change reverses may hold their positions for too long and could lose the profitable trade. Hence the trader should be happy with a reasonable profit and not wait daily to maximize his profit. It is possible to make a profit trading forex daily, and so traders should not be very greedy
Trading indecisively
Traders often find that the trade they have chosen is not immediately profitable, so they close the trade, and reverse it, only to find that their market is moving in the opposite direction. The trader will regret his decision. It is important to choose a specific direction for a trade and be patient. Switching trades based on short term trends will result in depletion of the capital invested.
Predicting the top or bottom
Many new forex traders, try to predict the turning point for forex pairs, often going against the market trends. They may add more funds to the trade, and make a larger loss compared to what they predicted. Though it is not worth boasting about, it is safer to trade based on market trends. If traders wish to pick the bottom, they should choose the bottom of the uptrend. Similarly, if they wish to trade at a peak, they should trade when the market is moving up, not when it is moving down.
Refusing to accept mistakes
Though most people want to be right all the time, forex traders should accept that they made a mistake in the trade and continue to waste resources. This could deplete the balance in the forex account. It is always better to accept that the trade was a mistake, close it and look for the next opportunity to make a profit
Purchasing forex trading systems
There are many forex trading systems being advertised extensively online, which promise huge profits. Some traders make the mistake of investing money in these automated systems, and yet make losses. New forex traders should understand that there are no automated systems for making a profit trading in forex, each trader should develop his own method and strategy after spend time understanding the forex market…
