As a trader, it is crucial that you understand both the benefits AND the pitfalls of trading with leverage. Using a ratio of 100:1 as an example means that it is possible to enter into a trade for up to $100 for every $1 in your account. With as little as $1,000 of margin available in your account, you can trade up to… Continue reading Low Leverage Allows New Forex Traders To Survive
Month: October 2022
See How Leverage Can Quickly Wipe Out Your Account
Hopefully, you now have a better understanding of what “margin” is. If you don’t know what margin is, or think it’s an alternative form of butter, please read our previous lessons. Now we want to take a harder look at “leverage” and show you how it regularly wipes out unsuspecting or overzealous traders. Before we… Continue reading See How Leverage Can Quickly Wipe Out Your Account
Be Careful Trading On Margin
Margin can be thought of as a good faith deposit or collateral that’s needed to open a position and keep it open. Margin trading gives you the ability to enter into positions LARGER than your account balance. Although buying and selling on margin does not provide leverage in and of itself, it can be used as a form of… Continue reading Be Careful Trading On Margin
Margin Call Explained
Assume you are a successful retired British spy who now spends his time trading currencies. You open a mini account and deposit $10,000. When you first log in, you will see the $10,000 in the “Equity” column of your “Account Information” window. Usable Margin You will also see that the “Used Margin” is $0.00 and… Continue reading Margin Call Explained
Leverage and Margin Explained
Let’s discuss leverage and margin and the difference between the two. What is leverage? We know we’ve tackled this before, but this topic is so important, we felt the need to discuss it again. The textbook definition of “leverage” is having the ability to control a large amount of money using none or very little of your… Continue reading Leverage and Margin Explained
Ignoring Leverage: Why Most New Forex Traders Fail
Most professional forex traders and money managers trade one standard lot for every $50,000 in their account. If they traded a mini account, this means they trade one mini lot for every $5,000 in their account. Let that sink into your head for a couple seconds. If pros trade like this, why do less experienced forex traders… Continue reading Ignoring Leverage: Why Most New Forex Traders Fail
Summary: Risk Management
Be the casino, not the gambler! Remember, casinos are just very rich statisticians! It takes money to make money. Everyone knows that, but how much does one need to get started in trading? The answer largely depends on how you are going to approach your new trading business. It varies from person to person. Drawdowns are… Continue reading Summary: Risk Management
Reward-to-Risk Ratio
To increase your chances of profitability, you want to trade when you have the potential to make 3 times more than you are risking. If you give yourself a 3:1 reward-to-risk ratio, you have a significantly greater chance of ending up profitable in the long run. Take a look at the chart below as an example: 10… Continue reading Reward-to-Risk Ratio
Never Risk More Than 2% Per Trade
How much should you risk per trade? Great question. Try to limit your risk to 2% per trade. But that might even be a little high. Especially if you’re a newbie forex trader. Here is an important illustration that will show you the difference between risking a small percentage of your capital per trade compared to… Continue reading Never Risk More Than 2% Per Trade
Drawdown and Maximum Drawdown Explained
So we know that risk management will make us money in the long run, but now we’d like to show you the other side of things. What would happen if you didn’t use risk management rules? Consider this example: Let’s say you have $100,000 and you lose $50,000. What percentage of your account have you lost? The answer is… Continue reading Drawdown and Maximum Drawdown Explained