I'm relatively new to stock trading but I've been trading forex for more than 5 years now and has been consistently profitable. I'm thinking of venturing to share market because forex is not an investment and I want to invest my excess cash. Forex is purely speculative in nature. I mean, who wants to invest in coins and paper notes that get eaten alive by inflation?
You've heard both on equities and forex how people made a "fortune" and became millionaires. I can see the possibility in forex, I just want to know whether the same thing applies to equities. Obviously you cannot simply buy and hold, but you have to trade shares in order to create massive gain. And you have to use derivatives to take advantage of both bull and bear markets, something that cannot be done using long-only traditional equities.
Now, the cliche image of someone who made it big in forex or equities is the big house show off, the expensive sports car show off, the big yacht show off, etc. But notice one very important thing: Although you see and heard about them on various media, you almost always and most likely to see these pictures as part of a sales page! Which means they earn more in teaching or selling products than trading.
In forex, to be a millionaire you have to have a big capital to start with. Let's think about the best case scenario. A professional trader aims for 50 pips per day per currency, and they usually get it. Maybe out of all majors and crosses, 2 give profitable setup every day. If this person manages to get them all in a day = 50 * 2 = 100 pips a day. This is not to mention some traders who scale in their winning positions and almost double their pips per trade.
100 pips a day * 5 days a week = 500 pips per week. That's the ultra winning part with so many assumptions for a full time trader. Now on the other side, a professional trader would never let their losses run. The opportunity cost is just too big to nurture a bleeding position. And I notice also that when they get stopped, they don't quit and stay objective because the next setup will usually be enough for them to recover the loss and even to profit. So say they admit that they are wrong when they are 10 pips out, and they make one mistake per day per currency pair. So 10 * 2 = 20 pips a day. 20 pips a day * 5 days a week = 100 pips per week. This doesn't mean that their winning ratio is only 66.67%. And again this is only an assumption of making one losing trade per day. It could be none, could be more.
If you put one lot for every trade, a very rough estimation would give you $5,000 gross profit - $1,000 gross loss, which leaves you with $4,000 clean income per week. Now for the sake of this example, they get this every week out of 52 weeks. This would give you a total of $208,000 p.a. return.
This number is either not possible or totally underestimating the real income of a professional forex trader. Nevertheless, I know a store manager who earns pretty close to that with significantly less risk. I admit he works 9-5, but his income is much more secure. And he doesn't need massive capital to start with. He just needs an alarm clock, a good breakfast, and a bus ticket to get to work. We traders need significant capital to get things going. You can start with $200, but $5000 initial deposit won't get you far even if you are good.
That's from the forex perspective. I understand the difference in the mechanics between forex and equities, but the principles remain the same. So the bottom line is, can you earn a living purely from trading equities (no teaching whatsoever, or other source of income), or even get rich and make a fortune from equities alone as we all heard from the media? Especially when the large majority of traders are losing money in this game.