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The Forex Market market is one of most popular financial markets for short term speculation, due to its enormous size (over 1.8 trillion daily), leverage and tendency for currency pairs to move in trends.
The most enticing aspect of trading currencies is the high degree of leverage used (often 200:1). Leverage seems very attractive to those who are expecting to turn small amounts of money into large amounts in a short period of time.
What you should know about using leverage in forex.
Leverage is a double-edged sword and can work against you. Just because one mini lot ($10,000) of currency only requires $50 as a minimum margin deposit when leverage is 200:1, it does not mean that a trader with $2,000 in his account should easily be able to trade 20 mini lots.
Most professional forex managers are even not allowed to trade leverage 4:1!Take a look at the below example, it will show you how easy it is to lose great amount of your money when trading on big leverage, of course, trading big leverage can generate big profits.
A trade example:
Account balance: $2000
Trader takes 20 Mini Lots EUR/USD
Option 1:
If he losses 40 pips, what's left in his account?
40*$1/PIP*20= -$800 Account balance= $1200
Option 2:
If he wins 40 pips, what's added to his account?
40*$1/PIP*20= +$800 Account balance= $2800
P. S. EUR/USD can move easily 100 pips in one single day!
Success in FX
Success can be limited mainly for the following reasons: Many forex traders come with false expectations of the profit potential (because of the high leverage) and lack the discipline required for currency trading. Short term trading is not an amateur's or gamblers game and is usually not the path to become quick rich.
You have to take forex a serious business if you want to succeed! You need education and market knowledge. When you are trading in the forex market you must have the discipline needed to be successful!
A trader cannot hope to make enormous gains without taking extraordinary risks. A FX trading strategy that involves taking a high degree of risk means suffering inconsistent trading performance and often suffering large losses.
Summary
Trading forex is not an easy game, many traders with years of experience still incur periodic losses. You must realize that trading currencies takes time to master. |
