I have been very busy the last few months and as you can
tell I have only been able to get one post per month out, but I tried to make
it worth it. We are one trading day away from the mid-point of November trading
action and I have comfortably reaped over 2,000 pips so far. Yes, it has been a
good month which partially explains my absence. I was busy living life and
enjoying the benefits a rogue forex trader is able to afford.
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As stated above, I may only have had time for one post per
month but it was one which knocked you off your feet as I read a healthy dose
of unpopular reality about forex trading. During last month’s forex myth buster
section I informed the newbies who try to dabble around in the largest and most
liquid financial market of world about forex demo accounts. In case you have not had
a chance to check it out I strongly recommend that post to you which you can
access here: Forex Myth Buster: Forex Demo Accounts.
Today I will bust yet another myth which often circulates in
newbie circles as well as equally less educated offices of regulators; leverage
is dangerous. Those pathetic morons who claim that leverage is dangerous and
will lead to blown accounts are equally dumb and uneducated as those who think
you can learn how to trade in a forex demo account.
This myth has not only infested newbie traders circles, but
also the highest echelon of regulators who blame the collapse of Lehman
Brothers and Bear Sterns on over-leveraged trading accounts which is not only a
display of utter ignorance and lack of comprehension about leverage and the
financial system in general, but it also makes for a good joke around smart
money institutions.
The amount of leverage simply does not matter; the lack of
risk management causes traders to blow their accounts like a prostitute who sucks
you dry for the right price. The two primary reasons why Lehman Brothers and
Bear Stern collapsed are simple: 1. They were dumb money financial firms who
thought they should try to manage hedge funds; 2. They did not follow proper
risk management and where trading based on hope like a teenager with a few
thousand dollars in his pocket hoping to get some.
Leverage may be the greatest tool given to traders, but you
need to understand leverage in order to use it
otherwise the tool will use you and become your master while you become the tool. Alright, I sense that most of you are still struggling with this concept so let me slap you with a numeric example the same way I slapped something else in your girlfriends face which she enjoyed and begged for over and over again while you spend your free time figuring out why you have failed at life:
otherwise the tool will use you and become your master while you become the tool. Alright, I sense that most of you are still struggling with this concept so let me slap you with a numeric example the same way I slapped something else in your girlfriends face which she enjoyed and begged for over and over again while you spend your free time figuring out why you have failed at life:
Most newbie traders have picked up the idea that 1% to 2%
risk per trade is how professional traders operate their accounts so I will use
that example (whether it is correct or not is for another post). I will also give you a familiar trading portfolio
size as most new traders operate an account with insufficient capital; anyway so
here you are thinking you are something with a trading account of $1,000.
Common sense will allow even the most moronic trader to calculate
that 2% out of $1,000 is a whopping $20. This means you will risk no more than
$20 on your trade. Stay with me for a few more moments; your leverage is 1:10
and you will only risk $20. Now you increase your leverage to 1:100 and guess
what? You are still only risking $20. Take it another step further and trade
with a leverage of 1:1000 and you are still only risking $20.
Did you get my point here?
Don’t worry; if this was too much for you to comprehend then
you are definitely in the wrong place.
Forex myth busted!
PS: The hotties in the above picture are Mariah Milano and
Jessica James.