Before the European Securities and Markets Authority (ESMA) implemented a regulation in August 2018 requiring brokers to disclose the percentage of clients who incur losses trading Contracts for Difference (CFDs) and forex, there was limited transparency around how many traders were actually losing money.
Research revealed that the majority of retail traders experienced losses primarily due to high leverage and inadequate risk management. At the time, many brokers failed to properly inform clients of the associated risks and often used aggressive marketing strategies to attract novice traders.
The percentage of FX traders who lose money
A significant proportion of retail traders in the foreign exchange (FX) market experience financial losses. Research findings and data from brokerage firms indicate that approximately 70% to 90% of these traders ultimately lose money over time. Below are some important insights into why this occurs.
Key statistics on Forex trading losses
- ESMA Report: It was found that between 74%-89% of retail traders lose money trading CFDs and forex.
- US Commodity Futures Trading Commission (CFTC) Data: Consistently shows that 70%-80% of forex traders lose money.
- Broker Disclosures: Many regulated brokers now disclose the percentage of losing traders (usually 75%-85%) as required by ESMA and other regulators.
Why do most traders lose money?
- Leverage misuse: Forex offers high leverage (often 1:30 or even 1:500 for offshore accounts), which amplifies losses.
- Poor risk management: Many traders risk too much per trade and don’t use stop losses properly.
- Lack of strategy and discipline: Emotional trading, revenge trading, and overtrading lead to losses.
- Market unpredictability: Even experienced traders struggle due to economic shocks, central bank interventions, and news events.
- Spread and fees: The more a trader overtrades, the more they pay in spreads/commissions, reducing profitability.
- Lack of education: Believing it’s an easy game. Trading the markets could be as difficult as flying a fighter jet. No matter how well trained, only a select few would make the grade.
Who profits?
- Only about 10%-30% of traders are profitable over the long term.
- The most consistent winners are institutional traders, algorithmic traders, and highly disciplined professionals.
- Retail traders who focus on education, risk management, strategy, and psychology have a better chance of survival.
Retail traders focusing on education, risk management, strategy, and psychology have a better chance of survival
The forex market is known for its high liquidity and rapid pace, drawing in millions of retail traders worldwide. Despite its appeal, the majority of these traders end up losing money. Although there are many reasons for this, four crucial factors can greatly enhance a trader’s potential for long-term success: solid education, effective risk management, a well-defined strategy, and the right trading mindset.
1. The importance of education
One major reason many retail traders struggle is due to limited knowledge. A lot of newcomers dive into forex trading without fully grasping how the market operates, how leverage affects their trades, or how global economic events influence currency movements. In contrast, those who find long-term success typically invest significant time into education and skill-building before putting real money on the line.
Education in forex trading covers multiple areas, including:
- Technical analysis: Understanding price charts, indicators, and patterns.
- Fundamental analysis: Evaluating economic data, central bank policies, and geopolitical events.
In addition to self-study, mentorship plays a crucial role in accelerating a trader’s learning curve. Learning from experienced traders can provide valuable insights that are not easily found in textbooks or online courses. A good mentor can help traders develop discipline, refine their strategies, and avoid common pitfalls that often lead to failure. Whether through one-on-one coaching, trading communities, or structured mentorship programs, having guidance from a seasoned professional can significantly improve a trader’s chances of success.
Retail traders who invest in proper education — whether through books, courses, mentorships, or hands-on practice with demo accounts — stand a far better chance of survival.
2. Risk management: The foundation of longevity
Even the best trading strategy can fail if risk is not properly managed. Many retail traders make the mistake of overleveraging their positions or risking too much of their account on a single trade. Without proper risk management, a series of small losses can quickly wipe out an entire trading account.
Successful traders follow strict risk management principles, such as:
- The 1%-2% rule: Risking no more than 1%-2% of the trading account on any single trade.
- Stop losses: Setting stop-loss orders to limit downside risk.
- Position sizing: Adjusting trade size based on risk tolerance and market conditions.
- Risk-to-Reward Ratio: Ensuring trades have a favourable risk/reward setup (e.g., risking £100 to make £300).
Risk management ensures that a trader can survive losing streaks and stay in the game long enough to capitalize on profitable opportunities.
3. Strategy: The blueprint for success
Having a well-defined trading strategy is crucial for consistency. Many unsuccessful traders rely on gut feelings or emotional decision-making, leading to erratic results. A solid trading strategy provides a structured approach to entering and exiting trades, minimizing impulsive mistakes.
Key components of a trading strategy include:
- Trading style: Whether day trading, swing trading, or position trading.
- Entry and exit rules: Criteria for entering and exiting trades based on technical and/or fundamental factors.
- Indicators and tools: Set parameters for executing a trade based on technical analysis.
Traders who develop, test, and refine their strategies over time are far more likely to achieve long-term success.
4. Psychology: Mastering the mental game
A trader’s mindset plays a critical role in their success, sometimes even more than education, strategy, or risk management. Without emotional discipline, even the best plans can fall apart. Fear and greed are powerful forces that often lead to impulsive choices, causing traders to deviate from their original strategy. Staying calm and focused is key to consistent performance.
Common psychological challenges in trading include:
- Fear of losing: Leading to premature exits or avoiding necessary risks.
- Overtrading: Trying to recover losses by placing too many trades.
- Impatience: Failing to wait for the right setups.
- Lack of discipline: Deviating from a well-planned strategy.
To combat these issues, successful traders develop emotional resilience and maintain a strong trading mindset. Techniques such as journaling trades, practicing mindfulness, and sticking to a structured routine can help traders stay disciplined and objective.
Conclusion
Retail traders who prioritize learning, effective risk control, well-defined strategies, and emotional discipline significantly boost their chances of staying in the forex market. Although no method ensures consistent profits, traders who commit to building their knowledge, managing risk responsibly, sticking to a structured plan, and maintaining psychological resilience are far more likely to succeed in the long run. True success in trading isn’t about chasing quick gains — it’s about cultivating the skills and mindset needed for sustainable performance over time.
