While I grant you that the title to this post seems a bit on the "sell you the Brooklyn Bridge" side of things, as I'm not selling it (and don't plan to), it is really more a think piece, a mental exercise, if you will. I'm not going to give you a specific strategy, what I'm going to to is show you, through a simple mathematical exercise, how you can easily get rich trading the Forex if you refuse to succumb to greed. Ok, here it is.
The power of the Forex is leverage. It can kill you or make you rich. The beauty of it is that you are completely in charge of which one of those it will be. If you've ever traded the Forex, you know what I mean. You've seen the advertisements touting 400-1 leverage (actually 100-1 is much more common). 100-1 leverage means that if you have an account balance of $10,000 you can trade up to 100 times the value of that account (or $1 million, or 10 standard lots). If you are using 10-1 leverage you would trade no more than 1 standard lot.
Ok, here it is. Do this math: If you made five (yes 5) pips per week, what is your return using 10-1 leverage? If you've ever traded the Forex, you know that 5 pips a week is not an intimidating number. Almost every trade I take, at one point or another, is up 5 pips (even those which eventually lose). I'm sure you are thinking 5 pips, is he kidding? That's not going to get me anywhere. Remember, I'm not talking about 5 pips a day, or a trade. 5 pips per week is my number. The math says that if you have a $10,000 account and are trading 1 standard lot, 5 pips a week will equal $50/week. If you trade 50 weeks a year that means you'll make $2,500 over the course of the year. That's a 25% annual return on your account. In the investing world, a 25% return over the long haul would make you a star (how many famous investors have averaged 25% over the long term? None). That level of return on a $10,000 account would turn the account into $1 million in 6-7 years. You can expand the math to 10 pips a week,(50% return), and you can see that the money gets ridiculous in very short order. If you trade Mini lots you can take the leverage even further. If you trade 1 mini lot for each $1,000 in your account (10 mini lots equals 1 standard lot), and your compounding is even quicker (because you are increasing the amount of currency traded every time you increase your account by $1,000 instead of adding to your trade only when you've earned enough to add another standard lot).
Why don't people trade like this? Well, some do. Traders who are looking to make money and not for the high that trading gives you, trade like this. Many traders set pip goals and when they reach them, they stop trading. However, most go for the 100 pip home run trades each time. Those folks almost always blow up their account. The way to get rich trading the Forex, is by taking reasonable advantage of leverage and by taking small bites. When you are trading 10 or 20 standard lots, and the money begins rolling in, the wisdom of this kind of trading becomes apparent.
The power of the Forex is leverage. It can kill you or make you rich. The beauty of it is that you are completely in charge of which one of those it will be. If you've ever traded the Forex, you know what I mean. You've seen the advertisements touting 400-1 leverage (actually 100-1 is much more common). 100-1 leverage means that if you have an account balance of $10,000 you can trade up to 100 times the value of that account (or $1 million, or 10 standard lots). If you are using 10-1 leverage you would trade no more than 1 standard lot.
Ok, here it is. Do this math: If you made five (yes 5) pips per week, what is your return using 10-1 leverage? If you've ever traded the Forex, you know that 5 pips a week is not an intimidating number. Almost every trade I take, at one point or another, is up 5 pips (even those which eventually lose). I'm sure you are thinking 5 pips, is he kidding? That's not going to get me anywhere. Remember, I'm not talking about 5 pips a day, or a trade. 5 pips per week is my number. The math says that if you have a $10,000 account and are trading 1 standard lot, 5 pips a week will equal $50/week. If you trade 50 weeks a year that means you'll make $2,500 over the course of the year. That's a 25% annual return on your account. In the investing world, a 25% return over the long haul would make you a star (how many famous investors have averaged 25% over the long term? None). That level of return on a $10,000 account would turn the account into $1 million in 6-7 years. You can expand the math to 10 pips a week,(50% return), and you can see that the money gets ridiculous in very short order. If you trade Mini lots you can take the leverage even further. If you trade 1 mini lot for each $1,000 in your account (10 mini lots equals 1 standard lot), and your compounding is even quicker (because you are increasing the amount of currency traded every time you increase your account by $1,000 instead of adding to your trade only when you've earned enough to add another standard lot).
Why don't people trade like this? Well, some do. Traders who are looking to make money and not for the high that trading gives you, trade like this. Many traders set pip goals and when they reach them, they stop trading. However, most go for the 100 pip home run trades each time. Those folks almost always blow up their account. The way to get rich trading the Forex, is by taking reasonable advantage of leverage and by taking small bites. When you are trading 10 or 20 standard lots, and the money begins rolling in, the wisdom of this kind of trading becomes apparent.
