Let’s be honest, the main reason why beginners get into trading is because of money. But can trading really make you rich or is it just wishful thinking? In this article, we’ll debunk the myth and see if it’s too good to be true.
The Potential Rewards
The first thing that most people think of when talking about trading is the big profits that are being made in different markets like stocks, forex or cryptocurrencies. And it’s true. Everyday, big investment banks, hedge funds and even some sharp retail investors are making a lot of money from the markets. Since most of us want to improve our financial life, it is therefore a tempting idea to start trading. The cryptocurrency market for example has been extremely profitable in recent years. If you would have bought Bitcoin for example in December 2011, you would have paid around $0.30 for 1 BTC. In December 2017, 6 years later, Bitcoin reach almost $20,000. So yes, should you have bought $100 worth of bitcoins at that time, you could have sold them for $6.6 million a few months ago. That would indeed have made you quite wealthy but how many of you are in this situation right now? Not that many probably and that’s because no one could predict at that time that the market was gonna go that high. And that’s the point, it’s really tricky to find the right opportunity at the right time and it takes a lot of skills, a lot of knowledge and surely a little bit of luck too.
The Reality Of The Markets
No matter how many tools you use, no matter how much you know about the industry you’re trading, no matter how many supercomputers you have performing high -frequency trading, you cannot be 100% sure of what the market is going to do next. Yes, there are times when certain decisions make total sense and that the probability of some events to occur is high but certainty is not part of the trading language. There are so many factors that influence the price of an asset and it’s nearly impossible to have all of them at your disposal to have a perfectly clear and transparent view of the market at any given time. That means you can’t be assured of your financial results with trading. It is not a source of income like a paycheck that comes in every month. So this is something to keep in mind and as always we strongly recommend to diversify your trading portfolio as well as your assets in general.
Big Budget For Big Profits
As we’ve just talked about, nothing is guaranteed in the financial markets. Therefore, you need to have a strategy and a budget to trade safely, minimize the risks while maximizing your profits. Simply put, if you want to make the big bucks, you need a big account to play with. Most beginners who get into trading do not have that capacity and usually take way too much risks. The big temptation for instance is to use margin trading to leverage your gains by borrowing funds from your broker and enabling you to buy more assets than you could have with your own funds only. Margin trading is a double-edged sword because it can be extremely profitable on one hand but the losses can be devastating. For more info about margin trading, check out our full lesson to understand the advantages and the risks of this practice.
The bottom line is that trading could potentially make you rich but the probability it will is quite low. There are many factors that influence your trading successes or failures and even though most of them should be under your control, not all of them are and your results and not guaranteed. As we mentioned earlier, yes some big profits are being made everyday but that also goes for big losses. We believe that developping yourself as a trader, making sure you know as much as possible about technical and fundamental analysis, are able to manage your emotions and your finances properly and learn from your mistakes should bring you good results in the long run without taking too much risks and putting too much pressure on yourself. Remember, wealth is not only about money.