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The Dangers of Trading Forex

Apr 14, 2008
One thing to be kept in mind if you are thinking of getting into Forex trading - this is a business, and should be treated as such. Forex trading is NOT gambling, and you should never trade with money you cannot afford to lose. This is the most important principle of Forex trading. Don't trade on the Forex market with the rent or grocery money.

Trading with these sorts of funds is gambling. Trading with money you can't afford to lose is an unwise move - it is a near certainty that you will make poor decisions and lose money if you look at Forex trading in this way.

You Won't Always Make A Profit

No one bats a thousand every time. This is true of Forex trading also. You'll make money on some of your trades, and lose some on others. The pros have ups and downs too - and keeping a realistic attitude towards trading will keep you from becoming discouraged.

A prime example here is Nick Leeson, maybe you recall the name. Before Forex trading became feasible to the general public, there was futures trading, which Mr. Leeson engaged in. Futures trading works in a similar manner to Forex trading, which is why we are using Mr. Leeson as an example. Nick was a banker, and made some very large trades in the early 1990's. He made over 20 million for his employer in one year, and seemed unstoppable.

But by 1992, he was on a losing streak. He had lost about 4 million dollars, and was still ahead. By 1994 however, his losses had multiplied a hundredfold, and he began embezzling from the bank to continue trading. His desperation drove him to ever more spectacular trades, and ever more dismal failures. By early 1995, he had lost nearly one and a half million dollars.

This was far more than his bank had in assets - as a result the bank went under, and Nick Leeson went to prison.

You can be successful at Forex trading - the idea is to keep making more profitable than losing trades.

You can sharpen your trading skills by opening a demo account (it's free) and paper trade using virtual money for a few months before getting into Forex trading with your own money. If you can consistently perform a profitable trade two thirds of the time, you may be able to begin trading on the Forex market for real.

Any Forex trader with whom you will want to do business will offer these free demo accounts, which can give you the skills you need to get started. It is in the trader's best interests to see you succeed - when you make a profitable trade, they win too, and will likely keep you as a client.

Try a demo account from the broker you are considering going with. You'll get a good handle on how they operate, which will help you to do well in the Forex market.

You may find at first when you start using your own money on Forex, that you are having a lower success rate. This is likely due to you having some apprehensions about losing money interfere with your decision making process. Use your analyses, not your gut when you are trading on the Forex market.
About the Author
Ian Armstrong is an avid Forex enthusiast.

Some of the most popular trading systems have been objectively reviewed - based on actual performance - at Forex Trading Platforms
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