April 10, 2012
enables you to speculate on the movements of forex prices by depositing only a small fraction of the total value of each trade, through its leverage feature.
This also offers traders easy access to a range of currencies as well as the potential to magnify their return on investment (ROI).
However, the leverage feature also presents significant risk; traders can incur losses that exceed their initial deposit.
The Forex Trader
offers advice on some of the issues affecting traders and how they can rectify them - looking closely at the risk management tools offered through
Problem: "I have 'Eyes Bigger Than My Belly'"
Traders have a tendency to get 'caught up in the moment' whilst trading the forex market, particularly during volatile market conditions, i.e. when a market's price moves quickly.
Trading on impulse can result in unrealistic trade sizes and a lack of risk management, including illogical entry and exit points, forgetting to apply stop loss and limit orders, and so on.
As a result, traders can end up supporting positions too large for their accounts and ultimately heightening their risk potential."
Answer: "Create a comprehensive trading strategy."
"The key to avoiding this is to create a comprehensive trading strategy which you can follow whilst trading forex."
Problem: "Bank that profit!"
"Similar to above, it's easy for traders to get 'caught up' when they are in profit and this can entice them into locking in a profit too early.
This can often leave those traders somewhat disappointed, particularly if the market continues to move in their favour and had they waited, they could have netted a much larger gain. One common theme amongst new forex traders is to run their losses and lock in their gains too early. Experienced traders will tell you that the balance should in fact be the opposite, with profits run and losses stopped early."