High Yield Forex Investments, What’s Realistic?
If you haven’t figured out by now, forex is a tricky game to play. Though you can earn more money than other market, you can also suffer big losses. Like most investors, you’re probably asking yourself, “how much can you really earn trading forex”? Well, the yield depends on the strategy AND risk of the FX trader. The truth is, some managed FX traders want high returns, and some just want steady yields. Though high yields would appear to be the focus, as you’ll see, RISK management is far more important.
Since FX trading is rather complicated, we thought we’d break it down for you . To simplify things, we separated FX trading strategies into four categories, using aggressiveness as the variable. This will allow you to understand the potential in forex, helping you determine the strategy that’s right for you. Scroll down, and take a look!
Low Leverage FX Trading: When you’re trading forex with low leverage, you usually focus on big moves in the market. In this case, you may hold a position for days before exiting. By doing so, you can reduce volatility while still capitalizing on big market events. Typically, most low leverage FX traders focus on stability first, and yields second. Since a low risk trader doesn’t want to “rock the boat”, they may use leverage of around 10:1. With less money leveraged, the trader can manage their exposure to risk a lot easier.
Traditional FX Trading: This phrase represents the strategy of a typical managed FX trader. In most cases, the main goal of these firms is to build equity, raising as much capital as possible. Though high yields make forex investors happy, the truth is, stable returns build bigger funds. If you can earn a few % per month with infrequent losses, you could run a Billion dollar FX fund in no time. For a traditional forex trader, leverage is around 50:1 with yields at 5-10% per month.
High Leverage FX Trading: The concept of high leverage trading focuses on smaller market movements, using account leverage to attain profit. Though most traders do not use high leverage, the truth is, it can be very profitable if done correctly. Remember, high leverage forex could be great, but you must manage your risk exposure. Unfortunately, since the FX market moves so fast, it’s pretty tough to always be right. If you find a trader with an expertise in high leverage FX, yields can be 25+% per month. In this scenario, leverage can be set to 100:1 or more.
Fully Leveraged FX Trading: Full leverage FX trading is using the majority of your account margin to trade full throttle. For example, for a 100K account, you could hold 20 total positions in the Gold futures market, since each position requires 4k in margin. If the trade goes in your favor, you could double your FX account daily. Then again, if you make the wrong trade, you could lose your account overnight. If you find a FX trader with this strategy, yields can be 100+% per month. Though this sounds impossible, it’s very realistic when leverage is set at 400:1. The fact is, it just takes a forex trader with the right risk temperament, and a whole lot of talent.
Take a minute and ask yourself, what’s the top FX trading story you ever heard? We’ve spoken to FX traders who turned 50k into 500k in less than 60 days. You may be saying, “wow, how’s that even possible”? Well, the answer is simple, high leverage and big market swings. To give you an example of how this can happen, we’ve provided a Gold chart from February 2010. In this case, the news of financial instability in Greece lead to a huge price drop. Scroll down and take a look, it’s surreal!
As you can see, if you caught the Gold trade perfectly, you could have earned $78 in price movement within 24 hours. This means for every position you own, you’d earn 30k+ with high enough leverage. For example, with a typical 100k account, you could own 10 positions and still have 60k left in free margin. If you were positioned right during this $78 drop, you would have earned 400k+ on a 100k account. I repeat, you could of made 400%+ in profit with 24 hours. We know this sounds astounding, but in the right FX circumstance, you really can break the bank.
Though you’d think the Gold scenario is rare, due to big news releases, it can happen anytime. The truth is, even the best managing forex accounts are cautious during volatility. In fact, this is why you never find licensed FX traders earning 50% per month. Sure, we’d all love to earn high yields, but as any good trader knows, the reward is rarely worth the risk. Remember, high yields are achievable in forex, but they can ALSO lead to higher losses.
In summary, there are plenty of FX firms who implode overnight and drop out of the business. Don’t be another victim to inexperienced forex trading, get educated. High yields can sound good in forex, but long term stability is what counts in the end. If you’re invigorated by risk, then sure, shoot for the stars with high yield trading. If you’re like everyone else, build your risk tolerance slowly in managed forex. Remember, if you’re not comfortable with a forex investment, DON’T roll the dice. No matter how high the yields may claim to be, if it doesn’t feel right, it never is…
InsideTrade LLC Staff
Phone: (949) 444-2111