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By Shavasb Bohdjalian
Everybody knows that the forex market is the most vicious market in the world, with many forex traders burning their fingers over and over again. But the forex market remains by far the most popular market in the world since it offers the rare opportunity for investors or speculators to make staggering gains, if they catch the move correctly.
The reason for the excessive gains or losses is because almost everybody trades on margin leveraged positions, which means the gains or losses on the actual margin deposited to support the leveraged position is several times larger than the original amount invested.
But can small investors or retail forex accounts survive in the forex jungle? Sooner than later, a trader is bound to make a mistake or an unexpected statement by a central banker or finance minister is bound to come at the wrong time and against one’s position. And if on that day, the forex trader has opened a position many times the original investment, one is bound to make big losses if things go wrong.
In my opinion the main reason why retail forex accounts lose money is because they trade on excessive leverage and secondly because they are not disciplined.
The best way to shield against constant losses in the forex market is to entrust the management of the account to a professional forex manager or invest in a forex fund with a proven track record. When considering such an investment, make sure you are not saddled with asset management or other administrative fees. If possible, insist on not being charged any asset management or administrative fees and negotiate that the performance fee is restricted to 20% of the positive performance with no ifs and buts.
Rest assured, your forex manager is better suited to deliver positive results since he will be using advanced technical analysis trading tools to determine when the market is trending, ranging, or going sideways. The forex manager will in most likelihood know when important economic news will be announced and when important meetings such as an EU Summit or Ecofin meeting is taking place, in order to take position or stay out.
Perhaps more importantly, the forex manager is bound to be a professional adhering to very strict and disciplined trading rules. Before opening a position, the forex manager will know when to exit, when to stop loss the position and how to use trailing stops to lock in gains and protect against an adverse movement in rates. The forex manager is most likely to use risk management systems whereby before a position is opened, the profit potential will be marked and calculated against possible losses. Hence an important consideration will also be the risk to reward ratio.
A small investor or retail forex trader does not have the time, the discipline or the knowledge to follow and implement the techniques to trade correctly in the market, whereas the professional managing the forex account will be trading using all the right techniques. This does not mean that the forex managed accounts will always be making money. No. Forex managed accounts also have their bad days, but they are more likely to recover and move back into profit rather than a small retail investor.
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(Shavasb Bohdjalian is an approved Investment Advisor and CEO of Eurivex Ltd., a Cyprus Investment Firm, authorized and regulated by Cyprus Securities & Exchange Commission (CySEC) license #114/10, offering forex MT4 platform and forex managed accounts. The views expressed above are personal and do not bind the company and are subject to change without notice. Trading on margin and leveraged positions is risky and you may lose all or some of your capital since past performance is not a guarantee of future performance).
