Thursday, August 23, 2007
Is investing in the forex currency marketplace very safe? -
? All investing comes down to risk assessment. The real problem for most new currency traders is they use all of their leverage and then take unreasonable risks. They hear that you can make $1500 per contract if the Eur/Usd just goes up just 1.5 pennies (150 pips) and then over leverage to try to catch that trade. The leverage is a double edged sword. That $1500 can also be in losses. If one is using 100:1 leverage and they have say a $10,000 currency balance, each trade should be built around a small amount at risk such as 1 or 2 % ($100-200 maximum risked per trade). To do this you would start with mini contracts (1/10 of a full size account) and place a stop that matched a technical level and buy contract(s) that made the entire dollar amount at risk match the 1 or 2%. New traders often will use the leverage and risk as high as 25% on one trade, it doesn t matter if you are trading stocks, options, futures, forex, any other investment instrument, this is too much risk. In my personal opinion it is the misunderstanding of the forex market, lack of discipline, lack of money management, and over leverage that causes investors to take large losses in the forex market. Take in to consideration macro economics and news in the market, interest rate differentials, technical level, and again good risk to reward and money management, and you can trade the forex market successfully. It is not the market that creates excessive risk it is the trader. I think that any investment based purely on supply/demand (energy, commodities, metals, currencies) is very risky. Even though there is supply/demand associated with the stock market, there is an intrinsic value that the stocks will eventually follow (earnings). It is pretty safe about as safe as betting on 00 at the roulette wheel. No wait the roulette wheel has better odds. in other words NO! The technology and forex companies today are very sophisticated and well organized. Do your due dilligence. HOWEVER, though we can trust the companies can we trust our money managing skills and our capability to trade professionally ? check out these few resources @ http://www.geocities.com/lcming/Forexboo... What is dangerous about Forex, is that it is the most highly leveraged derivative in the market, at up to 200:1 leverage. But if you put $100,000 into your trading account,and just trade one standard contract, it is no more risky than stocks. Or you can deposit $10,000 and trade one mini contract and trade with zero leverage. If you are really concerned about quot;safe,quot; you should probably stick to bonds and money market instruments. No. Currencies rise and fall at unpredictable rates every day. Even stocks are a more predictable investment than the currency market. Unless you are prepared to do it for a living, and you can invest money you don t need, it s best to leave currency trading to the professionals. There are some useful tips here.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment