Why 95% of Investors Fail at Futures and Forex

What does it take to be successful in life? Do we emulate the worst people, or do we emulate the best? When it comes to trading futures and forex, it seems easy to emulate the worst. Those who have heard about futures and forex trading usually hear it from family members or acquaintances who failed at it. While it is good to keep an open mind, the negativity of the unsuccessful can weigh heavily for those starting out or for those who have experience but still lack a grasp of the basics of how the futures and forex markets work.

There are a myriad of reasons why 95% of traders fail, ranging from undercapitalization or overcapitalization to not being familiar with the vocabulary, bringing old stock ideas into trading decisions, and misunderstanding gambling and speculation. The following chapters will shed light on why 95% of investors fail in their transition to trading futures and forex and more importantly how you can become one of the 5% that can take control of their futures and forex trading, leading them to success.

Becoming one of the elite 5% is easier said than done. That is why you must learn to separate your individual trading experience from your overall trading goals. You will sometimes find yourself losing right along with the other 95% of traders. You won’t be able to make heads or tails of the market. What will make the difference is not the loss but how you have prepared for the loss and how you react.

The World of Futures and Forex

While today’s futures and forex markets are the hottest news items, with the weak dollar, increasing oil prices, and gold making headlines every other day, it has not always been this way. Each of these markets was born out of the necessity of their times.

Forward contracts, the precursor to the futures markets, can be dated as far back as Phoenician times. In sixteenth-century Japan, we see a fully operational rice futures exchange that was functional and had a tremendous impact on the local economy. The countries that adopted forward contracts and later futures contracts, all had one thing in common: strong commodity economies that were impacted by time in some form or fashion.

The same occurred in the forex market. While foreign currency trading is a relatively new phenomenon, approximately 30 years in the making, it also came of age out of the need to accurately reflect the value of various burgeoning economies around the world.

So when the world was smaller, particularly after the end of World War II, import and export numbers were negligible and thus free-floating currencies were not as important. The moment that the world began to catch up with the United States in manufacturing and exporting goods, so did the need to accurately use currencies to reflect the strength or weakness of a country and then measure their goods and services accordingly.