Forex Trading is Just like Any Other Business

Written by Tim T.

One of the biggest mistakes that new forex traders make is to believe that that can make fast money. Many brokers offering leverage of 200:1 or more make a substantial amount of money off of those bright-eyed beginners among whom 99% blow their account in a relatively short period of time. When a trader uses the leverage given to them by their broker, it is essentially borrowing money that allows them the opportunity to make a large profit. The flip side is that you can incur substantial losses which a fast money strategy would certainly lead you towards. When they banks loan money there are typically interest payments, which is how they generate a profit. The forex brokers receive their returns as soon as the trader takes a loss on the deposited and borrowed money.

One of the best ways to resolve the problem is to approach forex trading as if it is your own business. Expect to work hard before generating any profits. Most people would find it unrealistic, for a new busines owner to anticipate receiving a $10,000 return on $200.00 which is around 98% profit within 30 days or less. However, this is the thinking of many novice traders, and they are further encouraged by brokers that offer a high leverage on account sizes that are too small to accommodate the risks that is a normal part of forex trading. When a trader opens an account with 200:1 leverage, it means that they are trading on borrowed money 200 times their account size. This use of money would be devasting for a new or exising business, and likewise many forex traders are wiped out before the even know what happened.

Consider the fact banks offer an annual return of around 10% for a retirement account. This is considered by many to be a good, reliable investment. Now for the person that has $100.00 their deposit may be too small to open an account because the return is so minimal. Likewise, having too small of a forex account causes a trader to over leverage and loose because their deposit is minimal. Most brokers know that in order to be safe, a trader should open an account with at least $10,000. However, they will allow an account to be opened for as little as $100.00 which quickly adds up in profit for them since it is too small to accommodate any substantial loss. For those that want to win, approach forex like a business and you will succeed. If you make a yearly return of 10% or more on trading you are making a profit. Think about the many businesses that close out the year at a loss that would gladly accept even a 5% profit. The bottom line is to be realistic about your monthly and annual return expectations as a forex trader.
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