Tuesday, October 16, 2007

Leverage - Key to FX trading

As we all know FX became so popular to the retail segment because of the leverage that gives the opportunity to trade currencies even with 100 USD.

What's the trick though? The thing is that leverage kills and people who invented the retail FX business knew it - thus there are so many retail platforms all over the place - this is a great way to make huge profits as 99% retail accounts get margined out in the first year..

This is not a true statistic measure since I don't have one but it is knowledge I have collected thorugh my experience in the FX market in the last 5 years (I started back in the Fall of 2002...). And yes - most books state that every 9 of 10 retail traders give up in the first year.

Why I am still in the market? This is a question I ask myself everyday. And some of the answers are that market is a pure extrapolation of human mind - a clear representation of the true self and I try to gethold of my own emotions and thoughts through mastering the trading practice...

And Leverage I think is one of the key elements... while in the beginning it was Technical and Fundamental analyses - now when most things are quite clear Leverage becomes the key to trading success as it measures the emotional bias and the level of GREED one puts into his trading.

See this as a vicious circle:
Greed makes you use higher leverage ->
Higher Leverage derails your emotional balance and inreases the FEAR factor ->
FEAR makes you think irrelevant and make wrong trading decisions ->
you kill your self (your account is margined out... in trading terms)

So I have set myself now to a test - trading 1 lot only - thus trying to implement some basic set of Money Management rules...

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