As high as 80% of
retail traders lose money trading forex & CFDs with ASIC & FCA
regulated CFD brokers, depending on the broker. This figure could be even
higher in other regions where the regulators don’t require brokers to display
the percentage losses on their website.
Several factors are
responsible for these losses.
The fact that retail
trading in the forex market is not regulated in some geographies, relentless
advertising campaigns by scam brokers offering high leverage and even promising
return on investments, insufficient knowledge etc. have all contributed to this
grim statistic.
We shall discuss in
detail some reasons why retail forex traders lose money.
Factor #1 – Using
Excessive Leverage
Except you are a big
financial institution or corporation, you may find yourself needing to use
leverage to trade forex if you want to make a reasonable profit. That is okay
when used moderately, and when you understand the risks.
Traders need to
understand that trading with leverage involves taking a loan from the broker,
and you keep margin money with the broker. If things don’t go as planned, and losses
occur such that it is close your margin requirements, the broker will close
your position.
A leverage of 400:1
means that for every $1 of your trading capital you can control $400 worth of
currency or similar derivative.
A leverage of 400:1
also means that the trader’s margin is 1/400= 0.25%
For example:
If a forex trader wants
to transact as follows:
Quantity…
