I started forex trading a month ago and profits are like very high, I went from 120$ to 2500$! And I am finding it quite easy actually.. People everywhere are saying 90% traders fail etc etc so what am I doing wrong here? I trade at 1:1000 leverage, can anyone guide me on this? Thanks
Think about it like this:
Assume 1,500 people go to a casino to play roulette. They all put their money on a single number, with 1/38 odds. On average, 39 of those people will win, giving them a payout of 36x. Then, all of those people put their money down again. On average, about 1 of those people will win again, giving them a new payout of 36x [for a total payout of 1,296x their initial investment].
Which of those people is most likely to post about their gambling results? The person who won. This is called 'survivorship bias'. It means that we are more likely to hear from people who 'survived', even though most people who played actually lost.
So in this case, you might be considered a 'survivor' of 2 months of fx trading. You seem to be invincible, and can never lose - what were all those people warning you about?! Well really, you have just defied the odds. Don't let your success blind you to the risk that was taken in that success.
There are a few issues at play here. In the stock market, there are gains to be had over the long term. In other words, the system is not "zero sum." Forex is the buying or selling of exchange contracts pitting the value of one currency against another. For sake of discussion, let's ignore commissions. That make this zero sum. In other words, the money you make is not based on widget sales at Acme Corp, but just the misfortune of the guy on the other side of the trade. No judgement here, just facts. I clipped this years ago -
The top broker IB, brags that 46.5% of current accounts are profitable. This number contain the trail of survivor bias. i.e. traders that have lost all their money are likely to have closed their accounts. Over the long term, the average forex trader has no trading gain or loss, save for the commission. It's no more complicated than that.