Dangers Of Forex Trading
Can You Afford To Trade The Forex?
When you start trading in the Forex, you must treat it as a business and not as a form of gambling. The number one rule in Forex trading is - "Never Trade With Money You Cannot Afford To Lose". That means you don't trade the Forex with money you have set aside to feed your kids, or your mortgage or rent money.
If you trade the Forex with money you need for essentials like food, clothing, or utilities, you are gambling. If you cannot afford to lose the money you use to trade the Forex, you will make unwise decisions and you will lose your money - that is 100 percent guaranteed!
You Won't Always Make A Profit
When you start trading the Forex, you must be realistic. You will make a profit on some trades and you will make a loss on other trades. Not even professional currency traders make a profit with every Forex trade.
Perhaps you have heard of trader Nick Leeson. (Nick traded mainly in futures, in the days before Forex trading became popular. Futures trading, follows much the same rules as Forex trading, in so far as you buy a currency, security, commodity, etc. in the expectation that its value will increase in the future.) Nick worked for a bank, and during the early 1990's he made some spectacularly successful trades. In just one year, he earned over 20 million dollars for his bank and it seemed he just could not lose.
However by 1992 he started making losing trades and lost around $4 million. Although at that stage he was still ahead of the game. But, two years later in 1994, his losses had increased to $400 million, and he begun stealing from his bank to keep on trading. Because he was so desperate to succeed, he became increasingly reckless, making ever larger and more spectacular losses. Until by February 1995 his losses amounted to $1.4 billion. This was more than the entire assets of his bank, and the bank went broke in February 1995, and Nick ended up in jail for fraud.
As long as you can make more profitable Forex trades, than losing trades, you should expect to turn an overall profit, and make a success of your Forex trading.
The best way to improve your trading skills is to open a free demo account and "paper trade", that is trade using virtual money, for at least two months before you invest a penny. You need to learn how to identify profitable Forex trades, using currency charts and by studying trends. Make sure you can make at least two out of three profitable trades before Forex trading with real money.
All reputable Forex brokers provide free demo accounts where you can learn to trade profitably. After all, it is to their advantage if you are ultimately successful, because then you will become their long-term client. It is also best, if you use the demo account provided by the broker you intend to use. Then you will become familiar with the way they do business and how best to interpret their currency charts etc. All of which will maximize your chances of success, trading the Forex.
You might discover, when starting to trade the Forex using real money, that you are less successful than when using virtual money. This usually occurs because you are letting your emotions (fear of losing) interfere with your reasoning. You must always rely on the results of your analysis when trading the Forex, don't be influenced by gut feelings or hunches. To avoid this happening it is best if you develop a trading system using your free demo account – and always stick to your system.
