Ignoring Leverage: Why Most New Forex Traders Fail

Most professional forex traders and money managers trade one standard lot for every $50,000 in their account.

If they traded a mini account, this means they trade one mini lot for every $5,000 in their account.

Let that sink into your head for a couple seconds.

If pros trade like this, why do less experienced forex traders think they can succeed by trading 100K standard lots with a $2,000 account or 10K mini lots with $250?

No matter what the forex brokers tell you, don’t ever open a “standard account” with just $2,000 or a “mini account” with $250.

Heck, some even allow you to open accounts with just $25!

The number one reason new traders fail is not that they suck, but because they are undercapitalized from the start and don’t understand how leverage really works.

Don’t set yourself up to fail.

We recommend that you have at least have $100,000 of trading capital before opening a standard account, $10,000 for a mini account, or $1,000 for a micro account.

Of course, open an account only when you are consistently good.

So if you only have $60,000, open a mini account. If you only have $8,000, open a micro account.

If you only have $250, open a demo account and stick with it until you come up with the additional $750, then open a micro account. If you have $1, find a job.

If you don’t remember anything else in this lesson, at least remember what you just read above.

Okay, please re-read the previous paragraph and ingrain it in your memory. Just because brokers allow you to open an account with only $25 does NOT mean you should.

Here’s why:

We believe most new traders who open a forex trading account with the bare minimum deposit do so because they don’t completely understand what the terms “leverage” and “margin” really are and how it affects their trading.

It’s crucial that you’re fully aware and free of ignorance of the significance of trading with leverage.

If you don’t have rock solid understanding of leverage and margin, we guarantee that you will BLOW YOUR TRADING ACCOUNT!

Reprinted from Babypips, the copyright all reserved by the original author.