Why Do Most Forex Traders Fail In The Markets?
It’s no secret that 70% of traders fail within the forex markets. Out of the 30% that is technically profitable, a lot of those aren’t making any kind of meaningful returns in the market.
If you’re looking to reach profitability consistently as a forex trader, it’s important to understand the mistakes the 70% are making, so you can avoid falling into the same trap!
Most forex traders fail within the markets because they lack fundamental knowledge of the markets, and risk management, lack enough trading capital, and over-leverage their trading funds.
Let’s find out more…
Why Do Most Forex Traders Fail In The Markets?
The forex market has never been easy, but right now it seems like more forex traders are failing than ever before. The market hasn’t gotten tougher, and it’s certainly profitable to make consistent returns within the forex market, you just need to know exactly which areas to focus your energy and time into.
The most common reasons for traders losing money in forex are:
- Not having an in-depth understanding of the forex market
- Over-leveraging trading accounts
- Lack of risk management
- No trading plan or strategy
- Lack of trading capital
- No support in your corner
Although quite a lengthy list, by tackling some of these major concerns, we’ve seen an increase to now around 20% of our traders getting funded capital .
For reference, previously we were only funding around 1-4% of forex traders that applied for funded capital with us.
As a prop firm, we only make money from profitable traders so it’s in our best interest to drive traders towards profitability!
Let’s take a deeper look…
Lack Of Trading Knowledge
The most common reason forex traders are failing is simply because they don’t understand the financial markets. Forex markets have a very low barrier of entry, compared to other markets. Although this is great for the retail community, it means most traders don’t understand how the market works and how to actually build a consistent edge. The market is ever-changing, and you need to be able to adapt to it, this comes with a strong understanding of how the market works. Of course, this doesn’t happen overnight and takes a lot of dedication, time, and effort to achieve. If you’re not willing to put in the work, then the forex market isn’t for you! There are many trading resources online for forex traders, but it’s very important that you do your research and use credible sources. There is a lot of misinformation online about trading forex, which can cause newbie traders to make key fundamental errors. In fact, the majority of ‘support and resistance’ style trading courses are sold by unprofitable or failing traders, passing on their lack of information in exchange for making a quick buck!
This causes the 70% to stay unprofitable…
For this reason, we provide constant training and support for our Elite Club traders to help them reach their true potential within the markets. This includes weekly one-on-one meetings with a trading mentor, access to daily live market analysis on all asset classes, exclusive workshops, and a subscription to Trading Central. We’ve seen that by providing the actual education needed to succeed, 20% of traders are now receiving funded trading accounts from us, as opposed to the 1-4% before our education was integrated!
Trading With No Risk Management
Fundamentally, whether you have a great trading strategy or a mediocre trading strategy, risk management is what will make or break your success as a trader. Risk management is defined by Investopedia as “a strategy for protecting investments against market uncertainties.” It’s important to remember that the forex markets are very volatile, so even with the best trading strategy in the world, there will be losing trades. Risk management can be as basic as using fixed percentage risk and a tight stop loss yet can be as advanced as pyramiding and hedging trades. One of the benefits of taking on funded trading accounts is that it forces you to abide by the risk management standards set out by the prop firm.
For instance, our funded traders have a 4% maximum loss limit, auditing from KPMG, alongside a risk desk that allows traders to limit losses and stay in control of their trading capital!
The Importance of Trading Capital
With a low barrier of entry, traders are coming into the forex markets with just a few hundred dollars. In fact, you can even start forex trading with $10 if you’re with an offshore broker. Although possible, having a low amount of trading capital hamstrings traders because they’re not able to take enough trades to actually make a profit, or they have to risk too much per trade which can result in big drawdowns. Therefore, you should be trading with a prop firm.
We often find traders with low capital have very limited risk management skill sets and generally overleverage their accounts in every trade taken. This makes it very hard to progress within trading. Emotions go out of the window; risk management is non-existent and accounts are being blown!
This is where funded prop firm accounts come into the picture.
By joining our Elite Traders Club, you can start with anywhere between $5000 and $15,000 in trading capital. Once you prove your profitability and hit the milestones set out, you will have more capital allocated to your funded trading account. This can scale all the way up to $10,000,000 in funded capital, at no risk to yourself!
Trading With Too High Leverage
Being unprofitable is very common and actually expected within the first few years of trading. The only benefit of being unprofitable is that it forces you to learn a huge degree of risk management, in order to protect your trading capital. However, most newbie traders are coming into the industry with unregulated brokers behind them, offering 1:500 leverage. The issue with the high leverage is the fact traders can literally lose their whole trading account within just 1 trade. This is why limiting leverage, at least initially, is key to success within the markets. It’s important to understand the realities of the forex market. Successful career traders aren’t making 50% per month, they’re making 2-5% per month, every month and taking on funding – instead of shooting for the moon.
With our Elite Trading Club, traders, we give them enough leverage to enter sizable positions, whilst still controlling the maximum exposure. To mediate the lower leverage, we provide a huge amount of capital to our funded traders.
In Summary – Why Are Forex Traders Failing?
In conclusion, there are various reasons why many forex traders are failing. The most common reason is a lack of risk management and an unrealistic view of what’s possible. Traders need to remember that the forex markets aren’t a get-rich-quick scheme, and it will take years of dedication to actually become profitable.