So there is a thing called leverage...

Hi Guys and Girls.

If you open a trading account with £1000 of your own money, I guarantee you could get £200,000 to actually trade with.

Your face probably looks like this right now

You probably currently think I am either stupid, or one of those guys that send you an email from Nigeria claiming to be Dr. Scam-a-tunde with $400,000,000,000,000 I urgently need to transfer into your account, for which you will get to keep 15% for your troubles.

The truth is I'm not stupid, or a Nigerian scam artist (I'm actually Ghanaian). The statement I made at the start of this post is entirely true. It is called 'leverage' (not the TV show). Leverage is dangerous. It is also a good traders best friend. I'll explain how...

If you were to open an account with £1000 in it, a broker could offer you 100 times the amount in your account as leverage. This enables you to amplify your gains, but it also amplifies your losses (if you don't protect yourself).

If your broker offered you leverage of 100:1, this means that with $1000, you could open a 1 lot (1 lot = 100,000 units of currency) position USD:CHF (US Dollar:Swiss Franc). This would mean that rather than making just 10 cents per pip, you would be making 10 dollars per pip. (Recall what a pip is here).

This also however means that you can lose money a lot quicker. If the market moves 100 pips against you, your account would be wiped out. Considering the daily movement of USD:CHF is about 120-135 pips, this could happen very easily.  Rather than a 1 lot position, if the position was just 0.01 lots, 100 pips would only resulted in $10 being lost, just 1% of your account.

I've been taught that there two ways a trade can go. You can lose (small or big) or gain (small or big). By managing the size of the trade you open and setting a stop-loss, you only risk a small propotion of your account size when trading, effectively making the liklihood of a big loss very small, and allowing for small losses that don't hurt you emotionally and gains (small and big).

It's okay to lose as a trader, as long as you lose small. Understanding this is a fundamental characteristic of the successful trader.

Thanks for reading,

Jr

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So my masters started (part 2)

Hello everyone.

Continuing from my last post, there are often people who claim to be traders, but all they are doing is gambling - risking too much of their equity (money), and being led through an emotional roller-coaster as the market moves.

What made me attracted to Forex is the fact that you can protect yourself from losing more money than you are comfortable with.

Let's imagine another situation. Imagine I sold 1 lot EUR:CHF (Euros:Swiss Francs) at the exchange rate 1:0.8000. This means I have effectively exchanged 100,000 Euros for 80,000 Swiss Francs (For more clarification on how a trade works, look at the table in this post for a clear explanation of trade dynamics).

I sold 1 lot because I anticipate CHF to strengthen, which means that 1 Euro be able to obtain less Swiss Francs. If the CHF strengthened to 1:07932, and I then closed my trade, I would have made a profit of 680 Swiss Francs.

There is something important to note here - I have just risked 100,000 Euros to just make 680 Swiss Francs. This is clearly not a smart strategy, and is similar to the scenario that I described in my previous post.

The beautiful thing about Forex is that it allows you to set exactly how much equity you want to risk. I can indirectly tell my trading program to close my trade if I've lost a certain amount of money. This is called a 'stop-loss' - as it is the position at which you stop losing money in a trade. Most people say you should risk anything between 0.1% to 5% in each trade, but in my opinion it depends on your ability as a trader.

What this means is that you will never risk more money than you are comfortable with, and also it eliminates the ability for you to make huge losses. You can still lose out on trades, but your losses will not be great.

I have a confession to make. The situation I asked you to imagine was actually something that happened. Although I'm not going to discuss the strategy behind my prediction (it is quite sophisticated), I did execute the exact trade described, and I predicted that the exchange rate would fall to 0.7932. It actually fell to about 0.7934, upon which I closed the trade early.

The yellow line is my stop loss. the first red line is where I opened the trade (0.8000) on the 21st of September, the second is where I predicted the price to end up (0.7932). I was almost exactly correct, and I closed my trade around 0.7934 on the 25th of September.

So you've seen a real life profitable trade, which earned over 600 Swiss Francs.

Thanks for reading,

Jr

www.twitter.com/jr_dot

So can someone get me these please?

Ahhh!

Vans Era 59 HL Wild Dove Grey - Get in my life!!

What do you think of them?

Jr

twitter.com/jr_dot

So my masters started (part 1)

Hi Guys and Girls,

It's been two and a half weeks since I last posted **hangs head in shame**.

I'm doing my masters in Sport Management. So now I DJ, play basketball, do a masters, and study Forex trading. This has left me a bit all over the shop recently, but I've managed to work out a schedule (like a good student) and I will be posting at least twice a week now.

So where were we? I've spoken about how I've managed to turn a scam into an interest in my last two posts:

here, and here

Although I'm not trying to sell a product to anyone, I understand that people need evidence to 'buy' into the idea that trading can be profitable. So, I'm going to first discuss the importance of risk management. In part two, I'll show good risk management, and also give you an example of a profitable trade that I made. So keep reading please!

Let's make up a scenario...

When you are trading, if a trade is going against you (or in your favour) you can close it at any time to stop your loss/secure profits. Now imagine you have £1000 to your name, but you have been given some information that leads you to open up a trade. You are CERTAIN that this trade is going to be hugely profitable for you, so sure in fact that that you decide to use all of your £1000 in this trade. You hope to make an additional £1000 in this trade, which is going to pay for that holiday to Miami you and you're mandem  have been looking forward to. You've already pictured your arrival at South Beach:

If you don't know this song, what's wrong with you?! 

Now it get's interesting...

When you open your trade, the market instantly moves against you, and you are at a loss - lets say £100. Not what you expected, but you believe the market to rally in your direction, so you leave your trade open. Anyway, you've only lost £100 - so it's all good right? WRONG!

Another sudden, and significant drop, and you are instantly down £400 - you are definitely sweating now. This wasn't supposed to happen. Why is this happening? You begin to pray. Hard. Surely the market can't continue to go in the opposite direction to the one you anticipated? Having made this stupid hopeful decision, you leave the trade open longer, and yes, the market moves completely against you. You are now down £1000, and you're trade is closed. You have lost everything!

Instead of Miami with the mandem you are going to spend summer in Mitcham with Mummy.

See your life?

Sound drastic? This is actually what wipes out 90% of Forex traders before they get properly started, and it tends to scare them off for life. What they fail to realise is that they weren't trading, they were GAMBLING.

Lesson? Traders protect themselves from large losses, and make small consistent profits. Gamblers risk everything hoping for one massive pay day. All their emotion goes into the market. They are 100% invested financially and emotionally in the market.

I'll show you what a trader does in the next post.

Thanks for reading, please share my work!

Jr

twitter.com/jr_dot