Foreign exchange currency trading or forex is advertised as one of the greatest ways to earn money on the internet, but how much money can you in reality create? Of course the answer is this it depends on many factors. These include your opening investment, your training, the time which you have free and your mind-set. But one of the most crucial factors is how you control the money itself.
Most traders, when they are starting out, spend a lot of time hunting around for the perfect system. Now of course it is true that you do need a system that has the potential to make profits, but there8945180246 are still systems that some people make profits with and others do not. You will realize this if you look at online reviews. Some will say that a system is great and they are making a lot of money with it. Others are losing. Why is this? Often, it is all in the way that they manage their money.
Take for example a system that, on average, makes 30 pips profit per winning trade and 15 pips loss per losing trade, with 50% winning trades. Clearly this system will make a profit over time. However, if you have ever played roulette or tossed coins you will know that a system with an average of 50% wins will quite often have runs of 5 or more losses, or runs that go something like 8 out of 10 losses.
So even though this is a profitable system, a trader who was risking 20% of his funds on each trade, would quickly be wiped out by it. Someone risking 10% per trade would survive longer, but would probably still fall victim to a bad run in time.
Someone risking just 1% per trade, on the other hand, would probably be able to make money indefinitely with this system. Profits would be small at first, but they would grow and grow. And at 2%, a trader would probably still be safe while making twice as much money as the 1% trader.
Clearly, then, in order to maximize your profits from foreign exchange currency trading it is important to know a few basic facts about your system. This means at least backtesting it over a long period, and preferably testing in real time through a demo account too.
If you are sure that your system is profitable, you can begin to trade at low risk. However, to go as high as you safely can, you need to know what is the worst case scenario that you can expect, that is, the maximum loss that you are likely to encounter before an upturn in the worst bad run, then double it, and make sure that you will be able to cover that.
As a rule of thumb, limiting your risk to 2% of your account balance is a good strategy for most traders. This can be hard for beginners and those with low startup funds because it does mean that you will not get rich overnight. This can be disappointing but it is a fact of life. As the old saying goes, anything that looks too good to be true, probably is.
It is vital to understand that many of the cases that you see where people double their money in a month, for example, rely on using maximum leverage and maximum risk which might result in doubling your money in the first month and then losing it all in the second. This is gambling, not investing.
Foreign exchange currency trading is a process that can be used to make a lot of money, but only if you allow your funds to grow gradually, along with your experience. Understand that a 5% to 10% return on your investment per month is a great result, and you have a good chance of making money consistently with foreign exchange trading
Most traders, when they are starting out, spend a lot of time hunting around for the perfect system. Now of course it is true that you do need a system that has the potential to make profits, but there8945180246 are still systems that some people make profits with and others do not. You will realize this if you look at online reviews. Some will say that a system is great and they are making a lot of money with it. Others are losing. Why is this? Often, it is all in the way that they manage their money.
Take for example a system that, on average, makes 30 pips profit per winning trade and 15 pips loss per losing trade, with 50% winning trades. Clearly this system will make a profit over time. However, if you have ever played roulette or tossed coins you will know that a system with an average of 50% wins will quite often have runs of 5 or more losses, or runs that go something like 8 out of 10 losses.
So even though this is a profitable system, a trader who was risking 20% of his funds on each trade, would quickly be wiped out by it. Someone risking 10% per trade would survive longer, but would probably still fall victim to a bad run in time.
Someone risking just 1% per trade, on the other hand, would probably be able to make money indefinitely with this system. Profits would be small at first, but they would grow and grow. And at 2%, a trader would probably still be safe while making twice as much money as the 1% trader.
Clearly, then, in order to maximize your profits from foreign exchange currency trading it is important to know a few basic facts about your system. This means at least backtesting it over a long period, and preferably testing in real time through a demo account too.
If you are sure that your system is profitable, you can begin to trade at low risk. However, to go as high as you safely can, you need to know what is the worst case scenario that you can expect, that is, the maximum loss that you are likely to encounter before an upturn in the worst bad run, then double it, and make sure that you will be able to cover that.
As a rule of thumb, limiting your risk to 2% of your account balance is a good strategy for most traders. This can be hard for beginners and those with low startup funds because it does mean that you will not get rich overnight. This can be disappointing but it is a fact of life. As the old saying goes, anything that looks too good to be true, probably is.
It is vital to understand that many of the cases that you see where people double their money in a month, for example, rely on using maximum leverage and maximum risk which might result in doubling your money in the first month and then losing it all in the second. This is gambling, not investing.
Foreign exchange currency trading is a process that can be used to make a lot of money, but only if you allow your funds to grow gradually, along with your experience. Understand that a 5% to 10% return on your investment per month is a great result, and you have a good chance of making money consistently with foreign exchange trading
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