Forex

FINANCIAL LEVERAGE MONEY MANAGEMENT

Leverage (Finance)

Most of the currency quotations change in less than 1% per day, but this small volatility is compensated by the leverage, which allows earning profits on relatively small price changes. Risks with a large leverage also increase in proportion to possible earnings.

Forex trades are carried out on the principle of margin trading, that is why the nominal size of the investor open position can significantly exceed the account balance. Forex brokers offer their customers the highest leverage (1:50 and 1: 100). If you select a 1:100 shoulder to open a position, the trader needs to have at least 1% of the total exposure. Trader’s positions are automatically eliminated when the current balance on the account becomes below the required amount to maintain the position.

Do not listen to rumors and opinions of experts, which, in principle, are the same. Such rumors only confuse the trader, and do not allow making money. Remember: if a person is an expert and can easily predict the exchange rate, he/she will not make posts on the Internet, but occupies the head position of the investment department of a large company or simply earns millions.

The larger the leverage is, and the more often you trade – the faster your account will be reset.

According to statistics, an average Forex European customer loses the money in three months. National American regulator NFA statistics states that during the quarterly period about 70% of the clients of the licensed American Forex brokers result in a loss, and only 30% – in profit. Is it possible to be in these 30% and why is there such a difference in the statistics of the
American and European regulator?The reasons for the clients’ money loss in the course of trading on foreign exchange rates can be of several types: due to the nature of the instrument (fundamental reasons), lack of proper experience if trader is a novice and due to banal fraud, when a firm that provides services to a client does not fulfill its obligations properly.

Money Management Rules

Use Trailing Stop, which is a useful stop-loss function that automatically moves an established stop loss order, following the market movement. Trailing Stop works on the trader’s side and only when the trading terminal is connected to the counterparty’s server. In other cases, Stop Loss order is used.

Stop-loss

is a warrant that helps to reduce the loss of a trader, in the event when the currency pair price will move in an unprofitable direction for a market participant. If the price reaches the level at which the stop-loss is set, then the deal closes automatically.

– Stop Orders Setting.

Stop orders are placed by the trader in the event of force majeure, such as trader absence at the appropriate time, sudden movements during the news release, etc. In this case, this set of measures can save the trader’s deposit from major draw downs. The size of the Stop-loss order is determined by the trader, based on how much the trader is willing to lose on one trade.
The higher the market volatility is, the further from the current price stop-order should be set.

– The amount of the invested funds should not exceed 5% – 30% of the total amount.

This will allow to continue trading and be in the “comfort zone”. Trader should take it as a rule: not to make transactions that can lead to losses, trading sums not more than 5-10% of the deposit;

– Ratio of possible profit to losses.

For each transaction, the trader needs to determine the level of losses, as well as the level of the expected profit. These levels must be determined before the transaction is concluded. As a rule, the expected level of income from every transaction should cover possible loss by 2-3 times. Only in this case the trader is able to conduct a successful trade.

How Much One Can Earn on Forex

How much one can earn in the Forex market is the main question for those who are just mastering their trading. But still there are no exact answers to such question. Everything depends a lot on the circumstances: market conditions, trader`s skills, deposit amount, the accuracy of the analysis, and many other important factors.
Internationally, professionally managing assets organizations, which are various investment funds, have average annual return on each invested dollar at a rate of 15-20%. 30-40% of them all are the most successful ones. These figures can be considered as a target for a trader to understand how much profit can be earned.

Factors Which Determine Profitability

The amount of the deposit.

The deposit amount is a very important factor limiting the trader’s opportunities in his/her earnings on Forex. 30% profit from the pair EUR / USD trading from $ 100 or 1000 will be $ 30 and $ 300, respectively. Therefore it is logical to assume: if the trader is really going to live on the money earned on Forex, then he/she must have a certain initial deposit, which, considering the average market profitability, will be able to meet his/her needs for earnings. In addition, the risks of trading small deposit amounts are high, while a sufficient size deposits allow reducing trading risks. Due to the small deposit amount, traders are often forced to abandon interesting and profitable trades, as there are risks of losing the whole deposit.

A good market situation and a sufficient starting capital will not save a trader from losses if he/she trades unreasonably and does not consider the available balance. Therefore, each trader should work out his/her own trading strategy and adhere to it, which will allow controlling the risks and avoiding unnecessary losses.

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