Why Blown Up FX Traders Have the Most Potential


GREAT POTENTIAL - I have found aspiring currency traders have some of the best potential out there when it comes to achieving success in trading and reaching that level where trading can be a standalone source of income. However, as is so often the case in life, the great potential carries great downside risk. And so, the trick is to understand why as a currency trader you have so much potential, what that risk is that you need to be aware of and finally, how to control that risk so that you can truly reach that potential. Ok, so let's break it down. Why as a currency trader do you have so much potential? The answer here may surprise you. The answer is 'leverage.'  But not leverage in the way that you're thinking. I'm not talking about the fact that you have so much leverage and by extension, the opportunity to take huge positions. I'm talking about the fact that you have probably made the mistake of using too much leverage and in turn, you've blown up your account many times.

PERSPECTIVE - So why is this an advantage? Well, the fact that you have taken so much risk means you are capable of taking ridiculous, absurd amounts of risk and able survive through it. Clearly not financially, but you've lived through the stress of it. This means that if you just apply appropriate leverage to your trading, you will find it to be quite pleasant and easily be able to handle stress associated with appropriate, responsible leverage. In essence, you can start trading! Trading is risky. That's true. But not in the way that many think. Taking risk doesn't mean risking everything, or even close! Think about it this way. A trader that uses no leverage and trades for one year, might hope to generate return on their capital of 10%. That is to say, a trader that has an account of $10,000 and takes 10k position sizes, will be looking for $1000 return at the end of the year. If this person trades EURUSD, they will trade 10k position sizes, so that every 100 points for or against will be a move up or down of $100. If the Euro moves from 1.1000 to 1.1100, it will translate to a $100 swing on his account. 

Taking risk is not about risking everything. Via @joelkruger

APPLIED - With this type of risk, the trader won't be stressed out, while achieving respectable returns that will also turn heads in the investment world. Yes. That's right. Returns of 10% are good. And so, if that same trader employs leverage at 3 times their account size (taking 30k positions on the $10,000 account), all of a sudden the returns jump to a conservative 30% annual returns potential, which is fantastic! Now I'm sure many of you have used leverage at times that I can't even think about writing without getting sick. So the thought of trading on just 3X your account size, probably sounds like a walk in the park. If it does, then you are starting to get the idea here. Stop trading on absurd leverage and start trading with lower leverage so that you can really get to doing what it is you set out to do when you started. If you can trade successfully on just 3X leverage, you will be a star! But if you don't want to listen and prefer to keep taking that gigantic risk via excessive leverage, maybe consider withdrawing those trading funds now and sending that money into charity. It will go a lot further. I promise. 

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