I often receive numerous questions about trading, particularly in the context of Forex. It's not surprising, given the rising popularity of retail Forex trading as a means to generate extra income or potentially amass wealth from the comfort of one's home. The appeal lies in the simplicity of clicking "buy" and "sell" buttons on a computer. However, it's important to remember that what appears easy at the outset can lead to a challenging journey, often without success.
The statistics don't lie – more than 95% of traders end up on the losing side. This harsh reality prompts those interested in Forex trading to seek answers to specific questions:
Is it genuinely possible to make money through Forex trading?
How long does it take to become a consistently profitable Forex trader?
What is the earning potential in Forex trading?
Is becoming a millionaire through Forex trading a realistic goal?
While these are common questions, more experienced individuals and those who understand the difficulty of making money in this world ask even more specific questions, primarily centered around the practical aspects of trading:
Do Forex brokers genuinely pay consistently profitable traders?
Are Forex brokers content with the commission or markups earned from each transaction, or is this their sole source of income?
Do professional Forex traders work with Forex brokers, or do they opt for alternative approaches?
These more detailed questions form the foundation of this article. I aim to shed light on some facts and myths surrounding Forex trading, information that is crucial for all Forex traders, particularly those who are just starting or considering starting.
The world is constantly changing, and the financial world changes even faster, given the presence of money. Fear and greed drive people to profit or lose in the financial markets, making everyone there for one primary reason: Making Money!
But here's the crucial question: Who actually makes money in this world of finance?
Becoming a profitable Forex trader isn't something that happens overnight. It's not just about knowledge and experience; another key player in your Forex trading journey is your broker. Your broker connects you to the world of currencies, and there's a lot going on behind the scenes that you might not be aware of.
I've written extensively about brokers, which you can find on this website, and I strongly recommend reading them to understand how brokers and liquidity providers operate.
Your choice of broker is paramount because, believe it or not, they can make you lose money even if you're an excellent trader who takes the right positions.
Brokers offer their services to make money; they are not charitable organizations. They are in it for the money and will do whatever they can to maximize their earnings. Government regulations can limit unscrupulous practices, but they can't prevent all forms of cheating. It's not illegal to be a market maker broker, and while being one doesn't necessarily mean they cheat their clients, the inherent conflict of interest arises from your loss being their gain, and vice versa.
Even if all market maker brokers cheat, retail traders have an alternative: they can open live accounts with ECN/STP brokers. However, it's not as simple as choosing one or the other. The more popular Forex trading becomes, the more unscrupulous companies, including brokers, may become. It's increasingly difficult to determine whether a broker is genuinely ECN/STP or a market maker, as many employ both systems but fail to disclose this crucial information.
Profitable traders, though, face their own set of challenges. If your account is on a market maker system, you might find that as you grow your account, the broker will do everything in their power to make you lose instead of allowing you to withdraw your profits.
What does this mean for you, the retail trader? Your initial live trading experience might end in failure, wiping out your hard-earned money. You then face a choice: save more money to open another account or give up on trading altogether.
The environment is changing, and it's getting tougher to profit with brokers these days. To answer the question of whether Forex brokers genuinely pay consistently profitable traders, the answer is a resounding no. This challenge is exacerbated as retail Forex trading gains more popularity and brokers become greedier.
But what about regulation? While it can help, there are highly regulated brokers who still engage in unethical practices. Regulatory organizations cannot monitor everything, and some methods of cheating remain undetected.
So, what about brokers being content with commissions and markups? The answer is no – they are not content, and some resort to unscrupulous practices to earn more.
Professionals in the field know all this, which is why they often choose not to risk capital that could potentially yield substantial profits. Instead, they trade through reputable banks.
Trading with banks has several advantages:
No leverage: This helps prevent overtrading and forces traders to take well-planned trades.
Longer time frames: Bank trading typically occurs on longer time frames, which encourage more prudent decision-making.
No conflict of interest: Banks have no reason to work against you, as your success is not their loss.
Stability: Banks are stable and have a constant connection to liquidity providers.
Deposits and withdrawals: These are straightforward with banks.
Support: Banks provide excellent support.
Additional services: Banks offer a range of financial services, such as mortgages and credit cards.
While the path may seem challenging for retail traders, it's not impossible to find success. Keep learning and practicing on demo accounts, and when the time is right, choose your trading route carefully. The world of finance is dynamic, but with knowledge and perseverance, you can navigate it successfully.