Risk and Profit in Forex Trading - ForeXposed

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Saturday, September 2, 2017

Risk and Profit in Forex Trading

Risk and Profit in Forex Trading
As a professional investor, you have to learn to see all scheme investments, not necessarily from the profit. There are many other factors in addition to profit you should know, and one of them is called risk. Forex is an investment that belongs to high risk-high return investment program.

It means it is an investment that has a high degree of risk. However, it also has a high-profit return that is proportional to the risk. Well, both sides of the profit and the risk is inseparable from each other. It's like a side adjacent to the currency. There is, however, the opposite. Yet there are opposite.

OK, then let's start talking about both of these things. I will be discussing the side for risks in advance. And I hope, this day is not to be a bad day, after you read this article.

Broadly speaking, there are three main things you need to know before starting forex investments, especially the problem of risk.

First, the total loss possibility can reach 90% of all the funds you invest.

Uh, what? 90%? Not so good as it sounds. Yes, it is not so good. But remember, this is the worst possible that might happen. Why can reach 90%, this is due to the former helper gods we know by the name of margin trading. Well, not gods helper again, right?

Remember, when Amir opened a buy position of 1 lot, as much as in the example when we learn about forex investment mechanism? Well, if you forgot you need to open it up again on the mechanism of forex trading.

Well, now Amir buy as much as 1 lot GBP, GBPUSD pair at the price of 1.9600. In the case when the GBP strengthened against the USD, then Amir will benefit. Now, what if that was otherwise? What if the price moves down? How the extent to which the position of Amir can survive?

In the forex trading market, though you can open as many as 1 lot and need a guarantee of only 100 Pounds, does not mean the minimum initial capital deposited was only 100 Pound, brokers usually set a minimum deposit on top the price of 1 lot. There are some brokers who set a minimum account opening as much as US $250 or even $500 US. What's the point?

Yes! Correctly, to hold the position when it turns out that the price moves against the position opened by Amir. Well, suppose that Amir started with his investment of US $250. 100 pounds (equivalent to US $196) is used as a guarantee to Open Buy position he did. Then, the remaining funds is 250 – 196 = US $54. 54 Dollars from this Fund is used to maintain the position of Amir that opens when it turns out that the price moves down, instead of rising as expected by Amir.

In the forex market, usually, the based currency used is the US Dollar. It means that all transactions will be converted into USD, and all the platforms already in the Dollar.

The question now, with the remaining funds of 54 dollars, how far Amir can defend his position? And what happens if the price moves down, and the Dollar 54 runs out?

Good question.

The answer to the first question, Amir can maintain its position until the price moves down as far as 54 points, because basically, 1 point is 1 Dollar price of GBPUSD. So if prices fall through to the rest of the funds, then at 1.9546, the 54 Dollar owned by Amir will be exhausted.

Then what will happen?

If the rest of the funds of 54 Dollar runs out then the open position by Amir will be closed automatically by the system, due to the lack of remaining guarantee to the opening position. In doing so, Amir suffered losses to 54 dollars, and now funds only left US $196.

The situation named margin call. A margin call is position closed automatically by the system due to the lack of fund guarantee owned by trader. An unpleasant thing for a trader. Nightmare, to be exact.

Well, the question is, how long margin call will happens with the remaining funds that only 54 Dollars? GBPUSD pair is energic couple that love to move here and there. With its volatility, typically GBPUSD can move up to 100 points per day. So Amir could have experienced a margin call and lost $54 in just 1 day!

Wow, very big? Yes indeed. Amir profit possibility by as much as 100 Dollars in one day, but may also experience a margin call if the rest of the Fund only of $250. Later we will learn further, although minimum opening account is affordable enough that is just US $250, open an account with minimal funds it is a high level of risk and is not recommended. Well, money talks and that's right. However capital will not lie.

Supposing, Amir started his investment with an initial capital of US $1000, then there is the rest of Fund was US $804, which means enough to stifle the movement several times. It should be noted, that the prices never go up and down in one direction many times. It means that there is a possibility after descending 100 – 200 points instead, the prices again moving up past 1.9600 and Amir profited.

So, that's the first risk that we learned.

Furthermore, the second risk is about liquidity. Last we have alluded, the DOLLAR movement may reach 100 points in one day. It means that the possibility of a profit/loss reached approximately Rp 1 million per day!

Well, what does that matter? Means you can lose your funds and experienced total loss as mentioned above and everything that's happened in a very short time!

Try to calm down and think what if this happened to you?

You lose funds $250 in just one day! Or say, You save 6 months to be able to start your forex investment and it turns out within 6 days all your savings gone there was no trace. Theoretically, this may be happening in the forex market. Something bitter but real and possible. How would you feel if this happened to you?

So, with these 2 things can be understood, that the correct word is that forex is a high risk high return investment program. High-risk investment, but also with a high return. And the two are inseparable from each other. Don't ever be fooled by the marketing that accentuates that side benefits without ever alluding to the possibility of loss that may occur. A good forex marketing shall also act as an investment advisor for his clients.

The latter relates to the risk is a matter of trading methods. The two points that we discussed together at the top, of course, you also conclude that the decision to perform buy/sell decision is the most crucial and very significant. When to come in, how long, and to buy or sell is a decision which will affect our future funding.

If so the crucial of all this is whether we are capable to predict price movement or not. They are reflected in the analysis we learned every day. The trading method is what we use and how the system we have to determine whether you end your career as a trader or a loser.

The bad news, there is no single method of trading that can guarantee you will definitely experience the continuous gains despite the use of a trading system that was created by the best forex specialists around the world. This is because the system is not necessarily fit the profile of the person who wore it. Yet with the problem of capital. Then how to trade. Trading hours. How to analyze. And the most important is the psychology of belonging to each trader. This causes none of the trading methods that can ensure you achieve 100% profit experienced over time.

You can follow the best trader you will ever know. But even then it is not a guarantee that you will profit.

Well, how? It seems to be a forex so scary to you? I have yet to tell the stories of those who fail in forex.

What I tell is the worst risk that may occur to your account. There are several ways to prevent all that happens to your investment. Here are a few things you need to consider in respect of the risk of forex investment:

1. Make sure the funds you invest is funds that are idle/devoted to it (risk capital).

We mean by idle funds are funds that are not used or not used for a certain purpose. So, it was set aside to invest in investments that have a high degree of risk.

Do not use  child's education fund or your family health fund to invest in forex. What will you do when your child's Education Fund burn because of forex?

Another one, it is strongly recommended not to owe to invest if forex. There are some people who act too bold with her credit card for forex trading. If you are already proficient and have the experience to play the forex profit, I have no comment at all. But if not..?

2. Don't rush to invest in real account just because you understand one or two forex techniques.

Even I still learn and continue learning while this article was created. Never consider yourself too adept in trading just because you've read a forex secret recipe from a man who has undergone a forex and gains profit.

3. Use a demo account for quite a period of time before starting the real account.

The broker of forex online trading service providers usually provide free demo account for anyone interested in forex to practice and get used to using their platform. The privilege of a demo account is all pricing and regulation is exactly the same as real accounts. The difference is only on the money that we use i.e., virtual money aka money toys. So theoretically, if you experience a profit on a demo account then the profit on a real account is not much more for you.

Well, the barriers are is often though they try the demo account and managed to earn a profit, time to practice on the demo is not enough. But brokers typically provide the time to 1 month (and could be extended) as long as we need until we feel truly proficient and ready towards the real account. Once again, an impetuous makes many unnecessary accidents become must occur.

4. Use Stop Loss and Limit to limit the gains and losses.

Stop Loss is a facility provided by the platform to limit losses that may occur when an error is encountered in predicting price movements.

While the Limit is useful to determine the position of the price when we need to do the taking profit. Usually, both of these facilities are available on the forex trading platform.

OK, we've learned about the risks that may occur in forex trading, and some of the ways prevent it. You may feel free to start forex trading because the article you just read. Good riddance if it is indeed the case. Because that is our goal. Help you to get started investing in the right way, measurable, and logical.

Of course, it is not fair to talk about risk, without knowing how large the potential you can get in the forex trade.

Well to be fair, we also need to know the extent to which of the possible gains we get with forex trading. But it's like, I don't have to explain too long on this subject.

Well, there are many people who actually trade and benefit to tens to hundreds of thousands of Dollars every month. Although more of them are lost (many of them shouldn't need to lose if they have enough patience and a better way of trading). Forex remains a field of investment that offers benefits not such other conventional investment.

The potential profit on forex can reach tens to thousands of per cent each month. Some beginners to forex were able to achieve a profit in trading to reach hundreds of per cent each month.

With simple counts, based on average currency movements, for example, a GBPUSD currency capable of moving up to 100 points a day then by installing 1 lot just a day that means we can benefit 2000 points within one month (20 days x 100) Quite passable. US $2000 if it was in Dollar. It's still 1 lot. What if we put up a lot that gets bigger as you get the funds you have? Be big and getting bigger.

That's why many overseas traders who trade to finance their lives (even their wives) every day. The term Trading for a Living, hmm ... quite tempting isn't it? Enough from the home only and does not need to traverse the congestion in large cities, hundreds to tens of thousands of Dollars could we produce only from trading.

Just imagine, how the resulting effect if you managed to make a proper trading formula for yourself personally. A groundbreaking financial (financial independence) became part of your life and you can now leave the destiny to become your lifetime employees. Hmmm .... Sweet dream heh?

So actually, from what we learned today is that it's basically known advantages and disadvantages which may occur is comparable to each other. The market can become the best friend for anyone who makes profit. Instead, he can be the cruelest enemy you meet because it can burn your investment in the blink of an eye.

Well before you go any further with your lessons. Who would want to invest in forex must love a price adventure aka risk lover. If you are a risk averter aka those who don't like risk, please stay away and choose a less risky investment.