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If a trading system or method sounds too good it probably is. If anyone was going to sell a profitable system at an affordable price it is almost certainly not going to be profitable in the long-term. Learning the basics may sound, well, fairly basic although it is surprising how many new traders, myself included, tried to skip a few months of school to get to the fun lessons. The temptation for all forex traders is to set up a chart, apply some magic indicators and press buy when the light turns green.
Unfortunately, if it was this easy the forex market would not exist and we would have all retired yesterday. Getting a good understanding on the basics of the forex markets means applying some time to understanding how they function and what moves supply and demand of currency around the world. Taking a book on the basic principles of both fundamental and technical trading will open a new traders eyes to the charts and allow the development of personal trading ideas and strategies.
Regardless of whether fundamental or technical trading is a particular style of trading you want to explore, it provides a great insight, and often a profitable perspective, on where the market is going to go next. This is not quite as exciting as it sounds, but traders get a great deal of satisfaction in being able to predict price movements without relying on any indicator or third-party information.
This is the beginnings of becoming a completely autonomous trader and making decisions based on things which have occurred thousands of times on forex charts. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products.
List of Partners vendors. Can forex trading make you rich? Forex trading may make you rich if you are a hedge fund with deep pockets or an unusually skilled currency trader. But for the average retail trader , rather than being an easy road to riches, forex trading can be a rocky highway to enormous losses and potential penury.
But first, the stats. A Bloomberg article in Nov. While this could be interpreted to mean that about one in three traders does not lose money trading currencies, that's not the same as getting rich trading forex.
Note that the Bloomberg numbers were cited just two months before an unexpected seismic shock in the currency markets highlighted the risks of forex trading. On Jan. The surprise move from Switzerland's central bank inflicted losses running into the hundreds of millions of dollars on innumerable participants in forex trading, from small retail investors to large banks.
Losses in retail trading accounts wiped out the capital of at least three brokerages, rendering them insolvent , and took FXCM, then the largest retail forex brokerage in the United States, to the verge of bankruptcy. Unexpected one time events are not the only risk facing forex traders. Here are seven other reasons why the odds are stacked against the retail trader who wants to get rich trading the forex market.
Although currencies can be volatile, violent gyrations like that of the aforementioned Swiss franc are not that common. For example, a substantial move that takes the euro from 1. But the allure of forex trading lies in the huge leverage provided by forex brokerages, which can magnify gains and losses.
If the trader used the maximum leverage of permitted in the U. Of course, had the trader been long euro at 1. In some overseas jurisdictions, leverage can be as much as or even higher. Because excessive leverage is the single biggest risk factor in retail forex trading, regulators in a number of nations are clamping down on it. Seasoned forex traders keep their losses small and offset these with sizable gains when their currency call proves to be correct.
Most retail traders, however, do it the other way around, making small profits on a number of positions but then holding on to a losing trade for too long and incurring a substantial loss.
This can also result in losing more than your initial investment. Imagine your plight if you have a large position and are unable to close a trade because of a platform malfunction or system failure, which could be anything from a power outage to an Internet overload or computer crash.
This category would also include exceptionally volatile times when orders such as stop-losses do not work. For instance, many traders had tight stop-losses in place on their short Swiss franc positions before the currency surged on Jan. With this fact, of course, the risk of possible higher losses increases, and therefore this method should be chosen mainly by more advanced traders.
Here, the moments are used when the market has behaved according to certain rules that the trader has chosen before entering. It does not matter whether the trader prefers one of the above methods or another.
What is extremely important in this case is the knowledge of situations in which it is possible and appropriate to use this or that method and, conversely, when it is better to reach for another. This means that if someone uses a certain method on a certain instrument, for which he knows that in the long run, he achieves positive results only in long trend trades, then it is nonsense to try to use it in short trades, for example.
Only with such an approach can losses be minimized and profits maximized over time. Beware of rollovers - opening and closing trading positions at times that are close to rollovers may not be completely wise. Rollover is often associated with the spread of spreads, which can cut a lot of potential profits on both sides, or also send a trading position to Stop-Loss. Always have a business plan - without a business plan, trading is a journey into the unknown, which in most cases has a bad ending.
A business plan is the foundation that should show the direction even in the most difficult moments. A good business plan should therefore be able to answer the question "What to do when this or that happens? Don't just rely on business news - business news can be a great help at times, but relying on it like a bible sometimes doesn't pay off.
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