Friday, September 25, 2009



While high leverage serves as an advantage to attract traders to the market, it can at times also act as a disadvantage for them. With such high levels of leverage available to traders in the FOREX market, comes an equally high level of danger.

This can be true for the high stake positions which carry along with them, too much risk, leading to margin calls. This is where efficient money management comes into play for playing safe.

Today, you can leverage your investment with an online FOREX broker by 200, or even 400 to 1 and this creates tremendous profit potential. But it's a fact that most traders actually over leverage and lose.

In stock trading you can buy and hold and you only risk what you have paid for the stock and so long as it comes back you make a profit and you can wait.

In FOREX trading its different - you have losses that are open ended and they pile up quickly. You can't just sit back - you need to take action.


FOREX prices are volatile and make big moves everyday - combine this with leverage and you have a powerful tool for profits which of course can also cause losses.

Most traders have no idea about how volatility affects their trading and how to deal with it. Most FOREX traders have never heard of, let alone understand "standard deviation of price" yet it's an essential part of any traders FOREX education.

You have to know what is normal volatility and what isn't, to have any hope of succeeding with your FOREX trading strategy.

Most traders make the error of placing stops to close to their entry point and they get taken out by normal volatility and this is because they are normally over leveraged. Most traders try so hard to avoid risk they actually create it for themselves.


Although it is convenient for the trader to trade whenever it is suitable to him, it can be a rather tough job too. This is because, at times, it is not possible for an individual trader to keep track of the FOREX market, 24 hours a day.

This is where a broker comes into the picture. Retail or individual investors should try taking help from a professional broker rather than doing all the dealings himself straight with the huge market.

The broker will be an experienced professional who will act as an equal in your transactions, keeping you informed and updated about minute to minute details and fluctuations, and even guide you about the conditions, when to and when not to trade in the market.

Like every other financial market, FOREX market also has its share of advantages and disadvantages. But keeping in mind the two can surely help a trader become more vigilant and aware of what to expect while trading FOREX.

No comments:

Post a Comment