What are the downsides or pitfalls of trading currencies?
If economic stats and indicators of many countries are available to anyone (or are they?), why isn't it commonplace for people to be trading up on different Currencies and getting rich? Is it transaction costs alone? What are some other factors that make it risky?
I play around with it (paper trading) and discovered it can go against you very quickly but if you are stringent and wise when setting your stop losses, you can avoid big losses. I myself find it is best to play it safe by trading mini-lots and trading one currency pair at a time. The problem with stop-losses is if you set them to close (say 30 - 40 pips) you will hit them too often and will have a hard time making up the losses. I found the strategy that works best for me is setting very small limits (10 - 15 pips), setting no stop-losses and just waiting it out (it could take a few minutes to reach your goal or a few days). The drawbacks to that strategy is if the trade continues for several days, you'll have to pay rollover fees, which takes away from your original potential profit and if it goes high against you, you will need a lot of margin to stay in the trade otherwise you will have to take a big loss.
3 Responses to “What are the downsides or pitfalls of trading currencies?”
It tkaes a LOT of money to begin with to make a worthwhile profit trading currencies, and because it is such a volatile market, unless you can afford to LOSE a lot of money and not have it matter it is better to stay away from it entirely.
Comment made on March 7th, 2009 at 11:39 pmReferences :
There are those who succeed at this .. George Soros and some large companies. I hear that many fail. You have to look at the ecnonomies of the countries and the Goverments and World Bank that controls things. Then make your guesses, place your bets, and hope for the best.
For example the wind says that the Amerian Dollar to the Chinese currency is oddly fixed and you will have to guess how long that will last, and why. And for the last few years India has made the Dollar strong to the Ruppee to encourage American investment in their country. same questions.
good luck.
Comment made on March 7th, 2009 at 11:45 pmReferences :
I play around with it (paper trading) and discovered it can go against you very quickly but if you are stringent and wise when setting your stop losses, you can avoid big losses. I myself find it is best to play it safe by trading mini-lots and trading one currency pair at a time. The problem with stop-losses is if you set them to close (say 30 - 40 pips) you will hit them too often and will have a hard time making up the losses. I found the strategy that works best for me is setting very small limits (10 - 15 pips), setting no stop-losses and just waiting it out (it could take a few minutes to reach your goal or a few days). The drawbacks to that strategy is if the trade continues for several days, you'll have to pay rollover fees, which takes away from your original potential profit and if it goes high against you, you will need a lot of margin to stay in the trade otherwise you will have to take a big loss.
Comment made on March 8th, 2009 at 12:25 amReferences :
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