You will often read about the advantages of currency trading but you will rarely see the risk of currency trading mentioned, yet 90% of currency traders lose.
This article will look at the risks of currency trading and why this creates a vast majority of losing traders who wipe out their equity.
Lets look at the advantages first.
1. Profit opportunities all the time
As one currency is rising another must be falling creating constant opportunities for profit.
2. Liquidity & 24 hour trading
The markets are very liquid and trade 24 hours a day with literally trillions of dollars
3. The markets trend well
As currencies reflect economic conditions around the world they exhibit good long term trends
4. Leverage
You can trade on leverage and trade many times over the funds you have in your account
So with these great advantages why do traders lose?
The answer is traders cannot handle points 3 and 4, they see these as easy to deal with and these are not. Lets take a look why.
Currency markets trend well
Yes they do, but they only show reliable trends in longer time frames.
Most traders opt for short term day trading methods.
As moves within a day are random they get stopped out continuously and never run their profits.
Furthermore, even long term traders have no idea of how to deal with volatility and stop placement and continually get stopped out or bank profits early by not taking enough risk.
Traders are in many instances so concerned about reducing risk they actually create a scenario where they cant win.
Add Leverage
Leverage and volatility is a combination that makes risk management hard for even the most seasoned traders.
With leverage you need to study volatility and make sure your stops are not to close and that they are not trailed to quickly if you really want to make the big profits from the big moves.
Currency trends are easy to see in hindsight on a chart.
Its a fact that most traders are good at picking market direction, but they keep getting stopped out.
The main reasons for this are poor entry methods, trading to short term, or not having an understanding of volatility and risk.
Currency trading looks easy but few succeed.
If you are a new trader avoid day or intra day trading and trade longer term and get an understanding of volatility and how to place stops correctly and manage risk, so you can stay in the long term trends.
90% fail why should you succeed?
Ask yourself the above question.
If you dont know the answer, then brush up on dealing with leverage and volatility quickly or lose your money.
You cant avoid risk and you will only win in currency trading if you know how to manage it correctly and take calculated risks at the right time.
Leveraged currency trading can give you big profits, but it is very risky, dont let anyone else tell you otherwise.
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