Too much leverage is only a problem if you're over-leveraged

The Financial Times have this (gated): More scrutiny needed of retail forex trading platforms

In brief:

  • Retail foreign exchange trading … the reality …. according to the Autorité des Marchés Financiers in France, nearly nine-tenths of the clients it surveyed over four years lost money, with the average loss being almost €11,000
  • The FT says high leverage is an issue, and the use of stop losses: ” The consequent blend of market volatility and high leverage means that many trades are stopped early, even if the investor’s underlying view of rates is correct.”

The FT advocate:

  • Capping leverage … The US has done this, operating a 50:1 limit since 2010
  • Obliging operators to disclose more about the performance of their clients — such as average returns and churn rates

At this stage you may be asking yourself how is this 'education'?

What the FT have here is some harsh truth. And yes, its educational. The ugly fact is that new entrants to the forex market (any financial instrument trading market, really, but maybe FX most of all) face a high probability of losing money; some, if not all, of their trading capital.

The FT advocate capping leverage and providing more information about client performance.

These are not bad suggestions at all.

  • Capping leverage for example, will slow down the loss of capital by inexperienced traders, which will give them a chance to take the time to learn and improve.
  • And, of course, the more information you have about client performance the better.

But ... there is a but. Don't just rely on outsiders trying to make changes to the industry to make it less harsh for you. Have a think about what it is YOU can do to keep yourself out of the nine-tenths of the clients that lost money. Or, at the very least, keep your losses to a small amount, so that as you learn and improve you can benefit. Take responsibility for your own path.

The first thing to do is accept the difficulty of the path you are going down. I am not going to sugar coat this for you, please do not sugar coat it for yourself, and please have zero tolerance for those who will sugar coat it for you. Zero tolerance. The facts speak for themselves, 9/10ths of new entrants lose money. Those telling you how easy it is deserve nothing but your contempt.

And thats about it for this article. Taking responsibility for yourself is just step 1. Its a long path ahead of that.