Even a year back I was always short of capital while trading in the Forex and that affected my profitability quite badly.
I somehow needed to find a way out of this but wriggle room was nowhere to be found. I met Romney on a flight to Kansas and small talks on Forex led to my confessions about my capital shortage. However, he calmly gave me some real insights and tips to maintain the trading capital while trading on Forex. He advised me to leverage 10 to 1 or lesser of my trading capital and even said that $5000 was enough capital to bring in decent amounts of profits.
There are several new traders who start trading in Forex with very small capital and this is where all the trouble starts.
Research has revealed that it is in fact the other way round – traders who operate with a larger account balance make greater profits with higher number of trades. This is the result of effective leveraging on their larger trading accounts.
Small or first-time traders start out with smaller capital but with this they tend to expose themselves or rather their account to very high levels of effective leverage. Higher leverage will lead to greater looses in their trading capital. Thus, this bitter experience and huge loss leads to most of the traders giving up or continuing with the trade with higher effective leverage. Now, this is a deadly cycle, which completely kills the enthusiasm that actually brought them to Forex trading.
Effective leverage has a powerful and direct impact on your trading outcomes and the quality of your strategy takes a backseat. What is the effective leverage that you should use?
As mentioned earlier, experts recommend trading with the leverage of 10 to 1 or lesser.
No one knows when the market conditions are going to change; however, the above effective leverage will help you to bear the losses without wiping off your entire trading capital. Keeping the effective leverage at very conservative levels and using stop loss on the trade, will definitely minimize your losses.
Professional traders often take a very negative approach to trading i.e. instead of focusing on how much capital they can gain, they focus on the capital they are going to lose. No one can predict the price movement; hence, it is best to maintain a positive approach towards trading while being conservative when it comes to effective leverage.