Dealing with the FOREX can be Devastating to the Unprepared
In the world of FOREX, dealing with losses can be quick and devastating. Although the opportunity for reward is there, there is also a huge opportunity for losses as well. At any given moment, the market could swing and leave your account showing a zero balance. If you are not properly prepared for the market and how it operates, you could find yourself in deep trouble.
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High Leverage
The unique thing about the FOREX market is the high amount of leverage that every trader uses on a regular basis. Some common examples of leverage on a FOREX account are 100:1 and 200:1. This means that for every dollar in your account that you trade with, you are actually controlling $200. A currency pair only moves a small amount each day. Therefore, you are betting on these small moves in the prices of the currency to bring you large returns with leverage. Only a small movement in the currency pair can provide you with a large return. However, a small move in the wrong direction can actually hurt you.
Fast Movement
When you deal in the FOREX market, you have to be prepared to make quick decisions. The market at seconds speed and if you want to succeed, you have to get used to the pace. You could potentially place an order and it has moved hundreds of pips within a few minutes. This does not happen all the time, but it does happen from time to time. If you do not take the proper precautions before you place a trade, it could end up costing you a lot of money.
Stop Losses
Stop losses are a tool that you can use to help protect your account. When you place a trade, you should get in the habit of placing a stop loss on it. When you place a stop loss, the broker will close out your trade when it gets to that specified point. When you open the trade, you will place the stop loss at a certain point below where you got into the market at. As the trade moves, you can move the stop loss up or down to preserve some of your profits. This is really the only way to protect your account while a trade is open.
Proper Education
When you get involved in the FOREX market, you need to make sure that you take the time to properly educate yourself. The FOREX market is very complex and requires a lot of knowledge and a large influx of information. If you just jump into the market, you could potentially lose a lot of money along the way. Many traders will blow out their entire account with only a few trades because it is difficult to grasp quickly. You should not trade with money that you can not afford to lose completely. Also, there are accounts that you can establish to practice first. You should practice your trades extensively before investing your own money to avoid losses.
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