Typically, traders who make only a few concentrated large trades are more apt to lose money. On the other hand, traders who distribute their trading funds over many different trades diversify their risk and have a better chance of trading profitably. Similarly, traders who leverage their trades aggressively are more likely to have large losses than those who don’t.
Nevertheless, according to a 2014 Bloomberg report, almost 70 percent of Forex traders lost money in each of the preceding four quarters.
Unsurprisingly, data compiled by the National Futures Association, a Forex self-regulatory institution similar the stock market’s FINRA, shows that most retail Forex traders drop out after about four months.
Making money trading on the Forex isn’t impossible, but it’s difficult. Advisable practices include:
- begin trading with a practice account
- diversifying risk by making several small trades in different markets rather than a single trade.
- using stop loss orders to limit potential losses
- avoid using the available leverage, which can exceed 50 to 1. At 50 to 1 even a two percent difference going against your trade results in a total loss of all invested funds.