If you are a beginner forex trader thinking about wading into the forex market, there are risks and dangers you need to know about first. In this online forex trading lesson, I will teach you why even the best forex trading system or strategy poses extra dangers for the new forex trader. For this article, I will focus on the idea of Gambler’s Ruin.
If you are starting out as a beginner in the forex market, there is a good chance that your assets are low pussy888 kiosk download. You can open a live mini forex account and begin testing strategies for several hundred dollars or less. The advantage of trading the forex market, as you probably know, is the high leverage. That is, with 10:1 leverage, using $100 you can purchase $1000 of currency. If your position increases by 10%, you know can sell for $1100, or $100 profit. You have just doubled you money! At the same time, the forex market may decide to decrease you position by 10%. Then you have just lost your entire investment and you can no longer trade.
No forex systems or strategies can perfectly predict the forex market. However, successful forex traders can consistently generate a small winning advantage. This is similar to the way casino houses in Las Vegas have a “house edge” of 51-49 or similar amounts. Over the long run, with the best forex trading strategy, you can make a substantial profit, but over the short run, you will see profits and losses fluctuate.
This is where the idea of Gambler’s Ruin comes in. Say you purchase $1000 of currency, and your position fluctuates over the next 5 days as follows: $1000, $1010, $900, $950, $1300.
If you had used a 10:1 leverage with your starting $100, you could have sold your forex position for $1300 and made a whopping 300% profit, right? No! As you saw before, your position would be wiped out at the $900 mark, so even with the best forex trading signals or strategy, you would not have realized that $1300 profit due to the random ups and downs. This is Gambler’s Ruin.
Of course, if you were a millionaire, you could purchase $1000 at a 1:1 leverage. You would then be more resistant to Gambler’s Ruin (which is the same reason why casinos, with their millions, can beat even card-counting small-time gamblers). But as a beginner forex trader, you probably do not have that much cash and WANT the high leverage.
In summary, even the best forex trading strategy or system offers dangers to beginner forex traders. One reason, is simply because you have a smaller amount of cash and are at greater risk of Gambler’s Ruin, that is wiping out your account, due to random ups and downs. In this way, you will not be able to cash in when your forex system tells you to exit your position.