Forex is a global market that allows you to exchange one currency for another. If you’ve ever traveled to another country, you usually had to find an exchange office at the airport and then exchange the wallet money for the currency of the country you are visiting. Does Forex trading really work?
Many people like to trade foreign currencies in the forex market because they require the least amount of capital to start a trading day. Forex trades 24 hours a day during the week and offers great profit potential thanks to the leverage provided by forex brokers. Trading on the Forex market can be very volatile and an inexperienced investor can lose significant amounts.
Forex trading lever
Leverage offers a high level of both reward and risk. Unfortunately, the benefits of leverage are rarely seen. Leverage allows the trader to take larger positions than he could with his own capital, but puts additional risk on investors who do not properly consider their role in the context of the overall trading strategy.
Best practices would indicate that investors should not risk more than 1% of their own money in a given transaction. While leverage can increase returns, less experienced investors should follow the 1% rule. Leverage can be recklessly used by undercapitalized investors, and in no case is it more widespread than the currency market, where investors can get a leverage of 50 to 400 times the amount invested.
Trading strategy on the Forex market
Although the strategy can potentially consist of many elements and can be analyzed for profitability in various ways, the strategy is often ranked based on its win ratio and risk / reward ratio.
Your win rate represents the number of transactions you have won over a given total number of transactions. Suppose you win 55 out of 100 transactions, the win rate is 55 percent. Although not required, a win rate above 50 percent is ideal for most traders, and 55 percent is acceptable and achievable.
Risk / reward
Risk / profit means how much capital is risked to achieve a certain profit. If a trader loses 10 pips in the event of a loss of transaction, but earns 15 in the case of winning transactions, he earns more on the winners than on the losers. This means that even if the investor wins only 50% of his transactions, it will be profitable. Therefore, making money on winning transactions is also a strategic element that many traders in the Forex market strive for.
If the goal of day traders is to earn a living from their business, trading one deal 10 times a day, while averaging the profit of one tick, can provide income, but it is not a decent living wage for other expenses.
There are no established rules for trading on the Forex market – every trader must look at his average profit per contract or transaction to understand how much is needed to meet the expected income and take a proportionate amount of risk to limit significant losses.