Knowing Forex Risks

Though it is hard to admit, forex trading is risky. And this is a situation that far too few traders pay attention to because it’s normal for people to fantasize about all the money they’ll be raking in while sitting on the beach, using either a smartphone or a laptop. The truth about trading currencies is quite different, though, even if traders don’t want to hear about it.

Facts

Some hard truths regarding trading currency that people can’t swallow are that there isn’t much difference between trading currencies, commodities, and stocks beyond the leverage. Though there are some slight nuances, traders will either try to buy at an uptrend or sell in a downtrend at the end of the day – unless they encounter trend trader. With that, the only real difference between forex trading and other types of trading is the massive amounts of leverage available.

All About Marketing

Forex trading can be extremely dangerous if traders don’t have any idea what they are getting themselves into. The ability to trade as high as 1000 times the amount of money they put up is absolutely insane. Nothing good will come out of these extraordinarily high leverage levels – although marketing professionals would have made people think differently. To make this easier, how many times a forex advertisement features a private jet, exotic car, or sailboat?

Undercapitalization

It’s quite astonishing how a lot of people think that they are going to become wealthy with a small trading account. It’s not that they can’t develop a trading account over the long-term, but most of them can’t start with that patience. They place $1,000 into an account, looking forward to making $1 million by the time it’s all said and done. But they don’t understand that some of the world’s best traders average 20% a year. And on a $1,000 account, that is only $200. Becoming undercapitalized is one of the most significant disadvantages retail traders face. It is hard to get excited about making $200 during the course of the year.

The Secret Formula

The truth is, there is no secret formula for making money in the forex world. Without a doubt, most people come across the idea of some kind of magical formula, system, or indicator that could make traders rich. Also, somebody will be more than willing to sell it to you for $99 – Think how generous someone who makes this kind of money to give these powerful tools for just several dollars. It is more likely that they are trying to sell traders something to make money instead of using it for their own account.

Truth to be told, the most profitable advice that people can give traders is to dimply dial back the leverage and use psychological discipline – something that most people fail miserably at. A serious argument can be made for the system being somehow irrelevant, as even some of the most basic trading systems have been proven to generate money over the long run. The question then changes to whether or not traders can psychologically take trading.