Easy access to the global financial market through the forex brokers which are offering leveraged trading accounts is very promising for retail traders and their expectations. It promises an irresistible combination of wealth and independence. All you need is a computer and an internet connection – and then you can earn a fortune from the comfort of your home. However, not many of them have on mind that the amount of capital they have at their disposal will greatly affect their ability to make a living from trading.
Every trader dreams of taking a small amount of capital and becoming a millionaire off of it. The reality is that it is unlikely to occur by trading a small account. While profits can accumulate and compound over time, traders with small accounts often feel pressured to use large amounts of leverage or take on excessive risk in order to build up their accounts quickly. Not realizing that professional fund managers often make less than 15-20% per year.
Leverage offers high reward coupled with high risk. Unfortunately, since many traders do not manage their accounts correctly, the benefits of leverage are rarely seen. Leverage allows the trader to take on larger positions than they could with their own capital alone. Since traders should not risk more than 2% of their own money on a given trade, leverage can magnify returns, as long as the 2% rule is adhered to.
Becoming a profitable forex trader depends on a lot of factors and only with time you will find the answers to these questions. You can make a lot of money and get rich trading forex but this will not happen overnight. Forex trading may seem easy and you may start thinking that you can make a lot of money in a short period of time but you need to have realistic expectations. Aim to be consistent and expect a monthly return of around 5%, which is a realistic return expectation.
Profits will come as the account grows, and making a living only requires a small edge, but the account must be large enough to provide monetary returns the trader can live off of. The edge is exploited by repeatedly putting enough capital into play (without excessive risk) to turn the edge into a livable income. It requires discipline, hard work, commitment, managing risk and capital, good trading strategy, control emotions, and more to make it possible.