If you are completely new to trading or have been around the block with your trading journey, somewhere along the line you will be become aware of the scary statistic that 90% of all retail traders lose money. Who are the retail traders? Retail traders are considered individual traders who manage and trade their own capital. They are not part of an Institution and trade as a hobby or potential side hustle.
To take the stats even a little further, the stats claim that 90% of retail Forex traders will lose 90% of their capital within the first 90 days. We will delve a little deeper into why the above is true when it comes to the success rate of retail traders and investors.
Firstly, you need to understand when it comes to Forex trading, for every seller in the market there needs to be a buyer and vice versa. Trading Forex is a Zero-sum game, so for someone to make money there needs to be someone who loses money. You need to understand who is taking the opposite end of your trade. So, who is on the other side of your trade? Major banks and market makers are on the other side of all your trades. They are buying and selling from you when you execute positions in the market. Banks are not in business to lose money, they exist to make money and a lot thereof.
Retail traders are at a disadvantage from the get-go because banks can see where all the orders are sitting in the market and it is their duty to take as much of your trading capital in the shortest space of time and make sure you deposit funds into your account repeatedly so they can stick their hands deep into your pockets. The banks also have much deeper pockets than you and they will very quickly drive the market into the opposite direction of all the retail traders and cause as much pain and frustration to retail traders ensuring you lose money. Banks know where all the orders are sitting in the market and they will ensure that 90% of traders get caught on the wrong side.
The second reason why traders lose money, is a lack of knowledge. You watched Wolf of Wall Street and suddenly you have this urge to take your savings and throw it into a trading account and start trading. Firstly, Jordan Belfort was not a trader, he was a stockbroker, massive difference. But he did make Wall Street look cool and making money look easy. I always ask new traders; would you go and fly a plane without any prior experience or knowledge and the answer usually is a resounding NO! So why would you start trading without any knowledge or experience in trading? Just because trading has become easily accessible does not mean you have to jump straight into your trading journey cowboying all your hard-earned money away. Get educated before your trading journey becomes a very short-lived horror story. If you are a first time trader, you should check out our trading course for first time traders.
Another reason traders fail is when that ugly inherit human trait we all have sticks out its ugly head, greed. Unfortunately, all humans are greedy, some less than others. We are consumers and our need for more increases the more we consume. We do not want to become rich over time, we want to become rich next week. This also ties in with another trait you require to become a successful trader and that is patience. Unfortunately, greed does not cultivate patience and therefor you will not reap the benefits patience provides in trading and Investing.
Finally, is the herd mentality. As humans we like to follow the herd. If everyone is buying Tesla stock, then surely, I should also be buying Tesla stock. I do not want to be the odd one out going against the cultural trend. But this is where many make the mistake, we have already shared the statistic that 90% of traders lose money so why would you do what the 90% are doing and expect a different result? You should be a contrarian, doing the exact opposite to that of the 90%.
It is not all doom and gloom; you can make money trading Forex and you can actually do very well for yourself. In the coming articles we will share information and tips on how you can become a profitable trader and Investor. Trade safe and remember no trade is also a trade. The goal is not to lose money but to make money. It is also not about being right or wrong, it’s about being profitable. See you guys in the next article.