However, this low margin and high leverage is also the #1 risk and cause of loss among novice Forex traders. Misuse of leverage is the Forex cardinal sin. In the article below I’m going to explain the new leverage rules, and show you exactly how to take advantage of it! To give you even more I put together this Free Forex Toolkit with an entire video section dedicated to using the new leverage rules to consistently profit…GET IT HERE.

What do we mean by low margin and what is leverage? Well basically this means that you can control a huge amount of a currency in the Forex market with a very small cash outlay. The normal stock and index options that we trade at BigTrends.com represent 100 shares of stock — you pay a premium to control/own this option. For example, in the stock option market you may be able to control the right to buy 100 shares of IBM for $500 — this is an example of leverage. However, the leverage in Forex is much greater than this in most cases … but so is the risk.

We only have to look at the recent housing market crash to see an example of where leverage and low margin caused massive losses among individual investors. People across the world were buying houses and properties beyond their means and with very little cash down. Many of these were speculative, greedy bets on a continued sharp rise in housing prices — which knowledgeable, experienced traders such as ourselves knew wouldn’t continue forever. They weren’t bad homeowners; they simply misused leverage.

The huge amount of potential leverage and low margin requirements in fx trading is similar to this. The latest rules allow Forex leverage for 50:1 on major currencies and 20:1 on minor currencies. Some brokers may still be able to offer 100:1 leverage. What this means is that a trader can often control millions of dollars of a currency proposition with a very small cash outlay. When novice traders allow emotions such as greed and fear to rule their trading, they often end up on the losing end of large leveraged bets.

Thanks for reading, and I’ve got a lot more where that came from! While I write my next article get my Free Forex Toolkit that will put your Forex trading on the right track!

Article compliments of Scott Downing, Director of Research at BigTrends.com

What’s wrong with Robots: They are not successful.

Of course, people boast about someone who converted a few thousand into a hundred thousand in only a week… yet this is false. The hype is based on historical trading that is ‘hypothetical’.

Fact: The majority of Forex traders who rely on Forex robots lose money.

Fact: The reason that robots don’t make a profit is the unbalanced risk management strategy integrated into their system.

Three pips, seven pips, nine pips – the quick, small profits are what the Robots seek. Naturally, over the period of trades, the Robot’s ‘Winning Percentage’ will be high percentages of 85-95% winners.

However, there is a serious problem with the Robots: their stop losses are out of whack with typical reward to risk ratios, normally approximately 1:5 or 1:10. (In other words you, the trader, are putting $10 at risk to try to win $1. In betting circles, this is referred to as a sucker’s bet, with you in the losing role.)

This is the true situation regarding those Robots: The stop losses are set so wide that any profits from all your winners can evaporate with just ONE TRADE. The reason is that the gains you realize on the winners pale in comparison to the losses you take with the risk that is built-in – or not.

The amount of winning trades is the opposite of the size of the reward/risk ratio. The higher your percentage of winning trades, the lower your reward ratio will be; conversely, the lower the percentage of your winning trades, the higher your reward ratio will be.

Your reward to risk ratio will be around 1:10 if the Robot claims to have 90% winning trades.

The facts? Do not focus on the ‘winning percentages‘; rather concentrate on risk management in each trade and in maintaining the risk to reward ratio in YOUR favor.

View this video and see the proof that this concept can make a major change in your Forex trading:
http://www.theforexnittygritty.com/private-forex-training

Choose the Regulated Brokers

Forex brokers operate online, often in different nations, and usually you have remarkably little control over what they do with your money. Your best friends in these conditions are the authorities who will supervise them in your place, and ensure that they are adhering to the ethical standards and principles expected from financial businesses. In the same sense, it is a good idea to choose brokers that are regulated in developed, strong, first world nations with well-established regulatory institutions. Despite all its shortcomings, you should prefer that your broker is regulated in the U.S., and not Belize or the Bermudas.

Do Not Entrust your Funds to Strangers

This should be fairly obvious, but a lot of trusting individuals fall victim to fraudsters after handing their wealth over without asking questions. That is an exceptionally unfortunate situation, but let’s not underestimate the persuasive powers of crooks. They make a living, earn their bread from lying, and it is natural that ordinary people are fooled by their illusory, stealthy methods.

Do Not Act on Rumors

From time to time, offers of managed accounts pop-up on the web and elsewhere offering up to 100 percent returns per month on a forex or commodity account. Since the top-secret methods of these money managers must be protected at all costs, you’re expected to close your eyes, plug your ears, and pinch your nose and hand over your cash without asking questions. Maybe you’ll make massive profits, maybe not. But more often that not, all you do is regret your folly in the aftermath. So, don’t act on rumors, advertisements, or empty promises about unlimited wealth.

Ask Questions

Do you ever have worries about your broker? Call them, question them. Do you feel unsafe about your partner? Contact them, face them with your worries. Do not be timid, it’s your money at stake.

 Be Sensible

If something is too good to be true, it probably isn’t true. Keep this as your maxim, and you’ll have a sure shield against fraudsters.

It’s not hard to avoid crooks and thieves online. But you do need to be aware. And you can ensure that you stay way beyond the reach of the fraudsters net by reaching for and perusing the best forex broker reviews on the net, as well.

The first thing I look for is the geographical location of the broker. If I find that they are based in a country where the financial industry is, in my opinion, relatively unregulated and under-developed, I quickly forgo signing up. This is terrible news for honest brokers in those countries, but your job as a trader is to protect your capital. If you lose that, then you cannot trade. The onus is on them to convince you that they will do the right thing by you as an investor.

I started out with an Australian broker. Currently I am using an American one. I have not tried UK-based brokers but the British financial industry is one of the best. Companies that are based in countries such as Japan , Germany and France are probably just as good too, if their website speaks your language.

Notice any license numbers that they may have registered with regulatory bodies that act like government watchdogs who oversee the finance and investments industries. These are organisations that impose strict rules to safeguard your investment. Some of these rules may include the requirement that brokers segregate all customer funds from the operational funds of the business. Your money is required to be put in highly-reputable banks and the funds are only withdrawn from these accounts upon specific withdrawal requests.

Take note that there are some fake regulatory bodies being thrown around in cyber-space as well. Take a look at how long they have been operating for. Try and search out any reviews or comments made about them. See if you can find forums where traders have discussions about their brokers.

Below is a list of things to keep in mind to help you avoid being a victim of a scam:

• Stay Away From Opportunities That Sound Too Good To Be True

There are people who may have just acquired a large amount of money just and recently are the same and are shopping around for safe investment vehicles. These may include retirees who have access to their retirement funds. It is understandable why retirees would be drawn to ‘high-return, low-risk investments’. This is also what makes them very vulnerable. If you identify yourself to be one of these people, be careful. A lot of deceitful characters are after your money. Furthermore, only allocate a tiny amount of your money to trading until you can start growing it. Not all people can trade successfully, so it is a venture you should take on haphazardly. It is your life savings at risk.

• Avoid Individuals Or Organizations Who Claim To Predict Or Guarantee Large Profits

Any form of trading is hard. Trading currencies is no different. Be wary of statements that make it sound easy. Statements like:

• “Whether the market moves up or down, in the currency market you will make a profit”;

• “Make $1000 per week, every week”;

• “We are out-performing 90% of domestic investments”;

• “You’ll make returns of 70% a year”;

• “Here is a no-risk strategy”.

If they could make such returns, why would they even bother letting you know about it.

• Be Wary Of Companies Who Downplay Investment Risks

Hold your wallet tight and zip up your purse when companies say that written risk disclosure agreements are routine formalities imposed by the government. Watch out for statements like:

• “With a $10,000 deposit, the maximum you can lose is $200 to $250 per day”;

• “ We promise to recover any losses you have ”.

• Be Wary Of Companies That Claim To Trade In The ‘Interbank Market’

Do not believe it when some people say that they have access to the ‘Interbank market’ or that they can give you access to trade in that market because that’s where bargain prices can be obtained. This is not true. The ‘interbank market’ is not a place, it is not a physical building. It is simply a loose network of currency transactions that are negotiated between big financial institutions and other large companies.

• Ethnic Minorities Are Often Targeted

Ethnic newspapers and television ‘infomercials’ are sometimes used to attract Russian, Chinese and Indian minorities. Sometimes these ads offer so-called ‘job opportunities for account executives to trade foreign currencies’, whereby the recruited ‘account executive’ is expected to use his own money to trade currencies and would often times be encouraged to recruit members like their friends and family to do the same.

• Seek Out The Company’s Background

Check any information you receive to be sure that the company is who they claim to be. If at all possible, try and get the background of the people operating the company. Do not rely solely on oral statements and promises made by the company’s employees.

• If You Are In Doubt, It Is Not Worth Risking Your Money

If after trying to solicit information and at the end of it all, you are still in doubt about the credentials of a particular company, my suggestion is to start looking elsewhere.

You may find further information by contacting government ‘watchdogs’ because they keep up to date with trends and reports regarding scams and other fraudulent activities.