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Posted on Jun 28, 2019 at 01:03 PM
Is it true that 90-95% of Forex Traders Lose Their Capital? This may be a myth...If profitability is calculated by the number of trades closed in profit rather than the equity growth over a period of time.
Once new traders attempts to trade Forex, one of the first things they are told is that, "90-95% of traders lose their capital" is this actually true or some sort of conspiracy to ensure that you never actually harness this business?
Well let's find out together...
In business, profit is basically calculated as the what you have made in sales over your invested capital and cost of operation.
IE: Sales- (Capital + Cost of operation).
How about when trading Forex, at what point are you truly profitable?
Typically, when you ask experienced Forex traders if they are profitable, majority of them would say yes with some sort of pride, but when you decide to seat together to analyse their trading history, you'd find out that despite the fact they have been making deposits and withdrawals they are actually not exactly profitable and only a very few are actually truly profitable.
There is a plot twist! How do I mean?
A trader could have steady inflow and out as a result good trading skills and bad equity/money management, such that today he can make a deposit today and lose all of it and make another tommorow, hit some profits and withdraw it. And maybe consecutively revolve around this circle that they never really check if they are profitable or not on the long run.
Also another trader whose strategy may have been on fire before brexit may feel unprofitable all of a sudden, because preluding the brexit drama, he was steadily making money and all of a sudden the market events are making it hard to cope, so he concludes that trading may not be profitable anymore.
So the key question is what exactly is the measure of profitability? No of closed trades or equity increase?
While it is tempting to count the number of profitable trades closed, your growth in equity is the real deal.
This is because it is possible to have 12 trades in a month, where 9 closes on profit with a total of $50 earned and 3 trades closed in loss with a total of $70. So in the end it's the real value of growth in equity that you should monitoring.
To calculate your true profitability over a duration, you need the following:
Total profits: Add all profits made within the desired duration.
Total losses: Add all losses made within the desired duration.
Capital: Add deposits made with the desired duration. (If they are multiple)
Profitability: (Capital + Total Profit - Total losses).
You could also find out your profitability rate by using this formular: Total profits-Total losses/Total Capital X 100. This will help you know the rate at which your account is growing per time.
Why Does This Matter?
Just like any other business, the plan is to scale up and increase your profit! If you do not know how well you are doing, how can you scale up?
At the end of the day, you may not be among the imaginary 90-95% losing their capital in the Forex market.
It is essential for every professional trader to keep up with these figures, if you want to increase your profitability as you trade in the market.
Does this piece enlighten you? Please share your thoughts and questions with me in the comment section below.
Until next time, stay profitable and happy trading!