Can you get rich trading forex?

Some people have made large sums trading currencies. Far more have lost money, and brokers' own published figures show it.

Whether trading could make you rich comes down to two plain numbers: how much money you start with and how much of it you risk on each trade.

What do brokers' own loss figures show?

Open the website of a CFD broker serving retail clients in the European Union or the UK. You will usually see a risk warning near the top or bottom of the page.

The warning gives the share of that broker's retail accounts that lost money trading CFDs. A CFD (contract for difference) is the contract many online brokers use for retail forex: you and the broker settle the price change in cash, and no currency is delivered.

Regulators in those regions require the warning, and each broker calculates the figure from its own client accounts. The figures are usually well above half, so at these brokers more retail accounts lose than win.

The numbers change over time and differ between brokers, so read the current warning yourself instead of trusting a figure quoted elsewhere. Brokers regulated in other places may not have to publish one at all.

The warning counts accounts. It does not say how much the winners made or whether skill or luck produced their results.

How much does your starting balance matter?

Picture a trader who makes 20% in one year after all costs. That number is only an illustration, and no trader is guaranteed a positive year.

Here is what the same 20% means in money:

A 20% year on $1,000 pays $200, which will not change anyone's life. To earn a living from a small account, you would need returns many times larger, year after year.

That gap tempts small accounts into large positions. Large positions are also the fastest way to empty a small account, as the example further down shows.

What would steady compounding take?

Compounding means each month's gain is added to the balance, so the next month's percentage applies to a larger sum. Say you start with $1,000 and make 5% every month with no losing months, an illustrative rate.

1. Month 1: $1,000 × 1.05 = $1,050.00.
2. Month 2: $1,050.00 × 1.05 = $1,102.50.
3. After 12 months: $1,000 × 1.05^12 = $1,795.86.
4. To pass $1,000,000, the balance must grow 1,000 times. At 5% a month that takes 142 months, almost 12 years, with no losing month.

No real record is that smooth: a losing month shrinks the base, and the next gain applies to the smaller balance. You can try other rates in the compounding calculator.

There is no trustworthy average return for retail forex traders that anyone can quote. A promise of a fixed monthly percentage is one no market can keep, and it is a common feature of forex scams.

Screenshots of huge gains online come from people who chose to post them. The accounts that were wiped out stay silent, so the sample you see is skewed. This is called survivorship bias.

Why do big targets push you into big losses?

Suppose you have $1,000 and want to double it this month. With high leverage, a broker may let you open 1 standard lot of EUR/USD for a small margin deposit. The numbers below are round and illustrative.

1. One standard lot is 100,000 euros. At 1.10000 that is $110,000 of currency, 110 times your balance.
2. At an illustrative leverage of 1:500, the margin is $110,000 ÷ 500 = $220.
3. On one lot of EUR/USD, each pip is worth $10.
4. A rise of 100 pips makes 100 × $10 = $1,000, doubling the account.
5. A fall of 50 pips costs 50 × $10 = $500, half the account.

EUR/USD can move 50 pips or more in a single day. A fall close to 100 pips would wipe out almost everything, and the broker's stop out would usually close the trade first, at a level set by the broker.

Regulators in some regions cap retail leverage far below 1:500, so this trade would not be allowed there. The lesson holds anyway: the target set the position size, and the position size set the risk.

Starting from the loss you can accept and working backwards gives a much smaller trade.

Why does risk matter more than the target?

A loss and the gain that repairs it are different sizes. Lose 20% of $10,000 and you have $8,000. Getting back to $10,000 needs $2,000, which is 25% of $8,000.

The bigger the loss, the faster the repair grows. A 50% loss leaves $5,000, and you then need a 100% gain just to get back to where you started.

The formula is gain needed = loss ÷ (1 minus loss), with both written as decimals. For a 30% loss: 0.30 ÷ 0.70 = 0.429, or 42.9%. The drawdown and recovery lesson goes further.

Now take two traders with $10,000 each who hit five losing trades in a row. One risks 1% of the current balance per trade. The other risks 10%.

The first trader has lost 4.9% and needs a gain of 5.2% to get back to $10,000. The second has lost 41.0% and needs 69.4%, after the same five trades.

Any method, including one that makes money over time, will have losing streaks. So decide how much you risk per trade before you think about any profit target.

What can you control if you still want to try?

Price is outside your control. How much you risk and how you practise are yours to decide, and those choices decide whether a bad month is a setback or the end of the account.

• Choose the most you will lose on one trade before you set a profit target.
• Practise on a demo account until you follow your own rules, and remember that demo fills can be kinder than live ones.
• Count costs. The spread and any commission are paid on every trade, win or lose.
• Record every trade, so you judge your results from written data.
• Fund the account only with money you could lose in full without harming your bills or savings.