Benefits of a Forex Community

Thursday, March 29, 2012
When you’re getting into Forex, one thing which you may overlook is the value of having a community. There are many different Forex communities online, and while you may think of investing as a competitive activity by nature, you will be surprised to discover just how cooperative and friendly the Forex online community can be. What are some of the benefits of joining a community and getting to know some of your fellow traders?

Having a community gives you access to a whole plethora of resources which you would not otherwise have. You may be tempted to go it alone, but you will be able to learn far more trading strategies and methods from others than you would on your own, and you’ll also have a chance to hear first-hand how they worked out for others. If you need help on a particular method or system, you’ll be able to speak to other traders at various levels of experiences who are working on using that system or have used it successfully for a long time. This can help you to solve problems with your Forex trading much faster than just reading ebooks! Best of all, most Forex communities are free, so the knowledge which you receive will be free as well. You can get a lot more out of a free community with an open exchange of information than you can paying for a system. If you do decide to pay for a system, you will be able to turn to the community to find out which systems or training programs are worth the money. A Forex community also provides a platform for reviewing brokers.

A community also gives you accountability. Many traders routinely report their progress (or lack thereof) to their fellow traders online. It can be a challenge to maintain discipline and keep working on something when you are likely to make many mistakes and experience many setbacks along the way. Forex traders often place their trades together and alert each other to trading opportunities. Being able to trade alongside someone else can help you to stay focused and not miss Forex opportunities. It will also make you less likely to revert to negative behaviors like gambling and unnecessary risk-taking since your loss could become someone else’s loss as well.

community of Forex traders can provide you with encouragement along the way and can assist you in developing greater self awareness. One thing which you will notice about Forex traders online is that many of them are generous with their knowledge — while you are certainly involved with Forex in order to further your own gains, you will learn just as much from the examples of generosity you discover in others around you. The gain of one can become the gain of many — and just as other Forex traders help you out while you’re getting started, you will one day be able to lend a hand to someone else who is entering the world of trading.

Managing Risk in Forex

Thursday, March 1, 2012
How much is too much to risk on a Forex trade? A lot of beginners don’t hesitate to risk a huge percentage of their bankroll on a trade — after all, one of the reasons that many new traders turn to the FX market is that they are able to control more money than they actually have using leverage. The reality though is that professional traders usually risk only a tiny percentage of their bankroll. Even 5-10% is too much for most traders. A better percentage to aim for is 1-2.5%. Whatever percentage you do go with, you should stick with it and be consistent. The last thing you want to do is wildly risk more on some trades than others — while you may think you have a «basis» for such a decision, it’s behavior which will quickly degenerate into gambling.

Why shouldn’t you risk a lot on your trades? The bigger your drawdown, the harder it is to recover. Let’s say for example that you open a Forex account with $1,000.00 (this is barely enough to get started; and make no mistake, if you do it right with this amount it will be slow going for a while). Let’s then say that you decide that you’re going to risk 50% on your first trade. If you lose that trade, your drawdown is 50%, and you are down to $500.00. What do you have to do in order to recover? You don’t just have to win 50% of your current bankroll — that would only get you halfway there. You have to win 100% of your bankroll, another $500.00, to get back to your original $1,000.00 — and that’s before you can even start to profit again.

If on the other hand you only decide to risk 10% and you lose, you’ll be down to $900.00. You’ll need to profit by 11.1% to make up for it and get back to $1000.00. Note how much smaller that difference is than the difference between 50% and 100%? That’s not nearly as unmanageable. It’ll also take you a lot more losses to blow your account.

The single most important thing you can do to make money in Forex is not to lose it in the first place. Money lost is harder to make up than it was to lose — just look at the percentages. It’s a mathematical fact. If you take care of your account and protect the profits you have, then your profits will take care of themselves. You should always keep your focus on losing as few trades as possible, and making those losses as small as possible. Money management is one of the key ways you can accomplish this. This is why a conservative approach to Forex is far more likely to win than one which is aggressive and involves risking huge amounts of money. Forex takes time and patience, especially if you’re starting out with very little money, but that patience will pay off in the end if you stick with it.