George Soros, Paul Tudor Jones, and Bill Lipschutz are among the richest people, worldwide who have made it big from currency trading.
The rich people trading forex have the benefit of a bigger capital base, so they can face the kind of risks that comes with this trade. For the average retail trader, the going can become tough thanks to the potential losses and meager earnings that may not make a lot of difference in a person’s financial state of affairs.
These are the tactics that rich people employ when trading forex.
1. They take advantage of leverage
Rich people trading forex understand that currencies can be volatile, and there can be substantial moves that can make you serious profits or losses.
There are instances where losses can be made through buying a certain currency, but this can be covered by a positive shift within a short time.
For example, a trader may choose to short Euros worth $5000 again the United States Dollar at 1.20, then move on to cover this short position at 1.10. The profit that will be made here is 8.33% or $500.
If this trader opts to use the maximum allowable leverage of 50:1, which is permitted in the United States, the profit made would be a whopping $25,000.
If this trader had gone long at Euro at the price of 1.2 and used the 50:1 leverage, then exit the trade at 1.10, the losses that would have been suffered is $25,000.
Leverage is among the biggest risks to retail forex traders and many jurisdictions are doing what they can to clamp it down.
2. They understand the asymmetric risk to reward
Most experienced and rich forex traders keep their losses at the lowest and then offset them with huge gains when their currency call gets right.
Retail traders, do it the opposite way. They make small profits and hold on to that particular trade for longer, and in the process incur a substantial loss. If you are not careful with this, you may likely lose all your investment.
Powerful indicators which forex traders need to know
To succeed in forex trades, there are various indicators that you need to know and among them are:
1. Information edge
Rich forex traders have access to voluminous trading operations that have been fully plugged into the currency world. This is not something that the average retain trader can access. This is why rich traders that have vast resources in the form of trading capital have a better advantage.
2. Currency volatility
When you are faced with a high degree of volatility, your trading capital may get depleted quickly. These events happen pretty fast and alter the markets before individual traders can react.
3. OTC Market
Currency markets are one form of over-the-counter markets and they are not regulated. This also means that all forex traders aren’t guaranteed by a trading organization, and the result of this is counterparty risk.
4. Market manipulation and fraud
Some of the biggest players in forex markets often manipulate the market rates, and this may present some level of risk for the retail trader.
The Bottom Line
Putting in place some safeguards is important to succeed in forex trading. Ensure that you check your leverage, use a reputable broker and keep tight stop losses. These measures can help you to level the playing field and ensure that you earn profit from your trades.