Why To Treat Forex Trading As A Business?

If you are trading Forex you will undoubtedly know that it is a high risk business. A lot of traders who trade Forex end up losing money. Unfortunately some traders end up losing a substantial part of their net worth.


Many traders - especially new traders - are attracted to Forex because they see brokers which are offering "200 to 1 leverage" and in some cases even higher amounts. It is a common belief amongst new traders that they can use this leverage to produce a substantial amount of wealth. This belief often ends in losses.


To be a successful Forex trader it is important that you treat trading like a business. It is unlikely that you could turn $50 into $20,000 in a short period. Of course there exist exceptions but they are very few and far between.


You need to adopt this same theory to Forex trading. One of the most reasons why traders lose money is because their account size is too small.


One of the major advantages in Forex trading is that you can effectively borrow as much money as you like from your broker. But it is important to have in mind that borrowing money to trade will increase your profits but it will also increase your losses.


There are no specific rules to state how much money you should borrow. A lot of new traders should start off borrowing a very little amount. Of course it depends on the type of strategy which you use.


If you have a $10000 trading account most brokers would allow you to open positions to the value of at least $500,000. So if you buy a USD pair this would be 50:1 leverage. The position size is 50 times of the size of your account.


It would not take much of a price movement in the wrong direction to effect a significant loss to your trading account.


A lot of new traders start with a small account balance. The same principle can be applied to a $100 account trading a $5000 position.


The smallest position allowed by many brokers is often $10,000 so they may offer you to open an account with $100.


The brokers do not care because they know that 99% of their clients who do this will blow their trading account.


The point we are trying to show you is the one of being realistic. Treat trading as if it is a business. You should have realistic targets in your mind. Think about the stock market or mutual funds. They often earn less than 10% per year on average. If you can make 30% per year by trading Forex that is significantly higher.


So do not expect to make $2000 a month from a $100 account. It almost certainly will not be realistic.