If you are new to the foreign exchange market then we strongly recommend that you take the time to read our introduction to forex and our article on the unique interbank structure of FX. This page has been designed to help you navigate through the barrage of multi-million dollar marketing that is designed to make forex seem extremely attractive to you. In our opinion, a large amount of this marketing makes fx trading sound easy (which it is not) and thrilling (which encourages you to involve your emotions, much like gambling). While it is well within the rights of the retail forex industry to attract customers we believe that this type of marketing is less than truthful and contributes heavily to the large percentage of traders who fail (ultimately lose more money than they earn). Below you will find examples of the kind of statements you might read throughout the web and our translation of them. We aim to tell you what the retail forex marketers do not. Forex is the largest market in the world, with an average daily volume of roughly $2 trillion a day True, the forex market does boast the largest average daily volume of the worlds financial markets but what does this actually mean for you? There are no official volume figures because forex does not operate from one central exchange but you will hear figures ranging from 2-3 trillion US Dollars depending on your source. The important thing is not to take this as a sign that there is a larger amount of money available for the taking than in other markets. The amount of money you are able to make depends on your ratio of winning trades to losing ones and your risk-reward parameters, not the amount of business done in foreign exchange. The true benefit of high daily volume is liquidity. The forex market is liquid 24/5 which should provide trading opportunities for speculators in all world time zones. However it should be noted that this added liquidity does not completely eradicate slippage, especially immediately before and after economic data releases. Furthermore the vast majority of this daily volume is generated by extremely large investment banks and multinational corporations. A large proportion of their business does not have anything to do with technical or fundamental analysis and is conducted to meet general business needs. This means that there is a strong argument against the reliability of short-term technical levels because general business is conducted when needed, not when a chart level suggests it would be a good idea. You can command a $100 000 position with just $1 000 down Retail brokers are quick to advertise the massive leverage they offer. It is typically 100:1 (for every $100 dollars of currency you buy/ sell you need just $1 in margin) and can be as high as 500:1. However, what this statement does not acknowledge is the need to cover your risk. If you open a $100 000 position (the size of one standard lot) with a stop loss of 20pips it will cost you $1 000 in margin. However you will need an additional $200 (20 pips multiplied by $10 a pip incurred when trading 1 standard lot) to cover your stop loss and prevent your position from being liquidated early which takes the total to $1 200. This is an additional 20% requirement on top of the original statement. Of course if your stop loss is larger, or smaller, than the one used in this example this figure will change. However the point is that much more than $1 000 will be required in real terms to trade $100 000, especially if you want to make more than one trade! As a side note it should be mentioned that almost every broker would liquidate (close) any open positions should your account show a debit balance. So, if you have $1 000 in your account and you open a trade for 1 lot your balance will read $0. You havent lost the money, it is being used as margin for the trade but it does not count towards the balance of your account. So if the trade moves 1 pip against you your balance will show $-10 and the trade will be closed. In actual fact $1 000 would not even allow you to open a $100 000 trade because of the spread. If you go long with a spread of 3 pips you are automatically down $30 because the offer is 3 pips higher than the price that you can close out (the bid). Therefore $1 030 would be the absolute minimum needed to open the trade. Certain services will often use the figures we have mentioned to over inflate their profit performance without any allowance for the size of their account. For example, making 30 pips profit ($300) on a 1 lot trade is not a true 30% gain. The size of the gain is dependant on the size of your account. As you can see from our performance table, we average over 400 pips per month When is a pip not a pip? When it is half a pip. It seems that most signal/ system services are over generous with the truth when reporting their performance. To illustrate this fact we will use an example. Suppose I am trading in a chat room and I receive live calls from the service provider. Now he/ she has taught me to scale my exits when I am in profit. So I trade 2 lots and exit 1 lot at the first profit target and 1 lot at the second. The first call of the day comes out to short EUR USD at 1.3500 with target 1 at 1.3490 and target 2 at 1.3480, both including spread. This trade goes well and I exit 1 lot at 1.3490 and my second lot at 1.2480 as planned. For reporting purposes this trade is listed as a 30 pip profit (3500 3490 = 10 pips) (3500 3480 = 20 pips).
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