In some circles, forex trading is known as being extremely easy. In other circles, it’s known as being extremely tough and not sustainable at all. The reality is somewhere in the middle ground. Let’s find out, is forex trading actually sustainable?
Forex trading is sustainable but it takes huge experience in risk management and discipline to sustain profitable results over the long term. The overwhelming majority of forex traders lose money over the longer term, although there are 10-20% of traders sustaining their profitability.
Is Forex Trading Sustainable Over The Long Term?
Forex trading is very hard to sustain over the long term. It’s no secret that around 80% of traders lose money and this is because it’s a very high risk and often volatile market. Even if you were profitable in the past, there’s no guarantee for profits in the future as things can change so quickly with forex trading.
There are some traders who have been consistently profitable over long periods of time but to be clear, they’re not as common as losing traders. There’s been many studies showing that the overwhelming majority of forex traders lose money over the longer term, although there are 10-20% of traders sustaining their profitability to become a successful trader.
The forex markets are extremely volatile with huge levels of liquidity and a large number of big players involved. This, in short, means that forex is the hardest market to trade. This volatility does cause trading strategies to stop working after periods of time – which can be very concerning for career traders.
Don’t let this put you off trading forex as an investment opportunity or retirement fund purely because some traders find it very hard to sustain profits. The issue with the stats and metrics that are released by forex brokers is that these are showing a lot of newbie traders. Of course there is going to be a huge amount of newbie traders blowing their accounts because they don’t understand risk management. I’d wager that many more consistently profitable traders find it easier to sustain profits over the medium to long term. The reality is forex is not coming to an end, so you’ve got plenty of time to figure it out!
The Key To Sustaining Your Forex Trading Performance
Without a shadow of a doubt, the key to keeping your performance on point is risk management. No matter what your trading strategy is or what the market is doing, risk management is the key to sustaining your profits. You can have a great strategy, but risk management will help you through when things are tough with the market
For example, if volatility is high, you can lose money in a couple of days. Your trading strategy might be strong but without having solid risk management in place, it doesn’t matter what your trading strategy does, you will probably find yourself in a losing position at some point. Risk management allows you to keep emotions in check so that you can trade objectively and follow your trading plan.
If you are not good with risk management, it’s best to look at starting out with paper trading or giving up on forex trading altogether. You need to be able to manage your risk and understand the risks of every position you take.
This is echoed by looking at very simple risk to reward ratios. You should either lose small, win small or win large. There should at no point be large losses flooding into your trading account.
As you get further into your forex trading journey, learning about pyramid trading and stacking onto winning positions will make a huge difference to your risk management abilities. This will allow you to take much larger winners, without ever increasing your risk appetite!
How To Stay In Forex Trading For The Long Term
If you want to sustain forex trading for many years, you’re going to need large amounts of trading capital. Although you can start trading with just $10, you’ll find yourself accidentally losing huge percentages of your trading accounts whenever you take a loss.
To sustain your trading, you’ll need at least £100,000 in trading capital and to risk no more than 1% per trade. This will allow you to make large enough trades to allow for slow and steady wins.
If we take a look at the forex traders that have been in the game for many years, none of those traders are A. making large returns, or B. trading on small accounts. They’re all risking tiny amounts (percentage wise), on large forex accounts.
Generating these levels of capital is no always easy. It can be done through compounding your trading profits for many years without taking any withdrawals. However, this isn’t practical for most traders with bills to pay.
Forex prop firms are a great way to get this capital – once you’re a profitable trader. These online prop firms like FTMO and MyForexFunds will give traders capital of up to $400,000 in exchange for a percentage fee on withdrawals each month. I’d recommend consistently withdrawing from prop firms and putting the earnings into your own trading accounts, so you aren’t relying on external capital for life!
In Conclusion – Is Forex Trading Actual Sustainable?
In summary, forex trading is sustainable but only if you have expert levels of risk management and fairly high amounts of trading capital. If you’re just getting into forex trading for a few months, it might be best to look at other ways of making money.
This is not a get rich quick scheme but nor is it even a get rich slow scheme for most traders. This is one of the worlds toughest industries and for the majority of traders, it won’t be sustainable at all.
Have you managed to sustain forex trading profits? Let me know in the comments below…