While it does indeed seem that the world has finally emerged from the grips of what can only be called a protracted recession, there is no doubt that the markets have been anything but kind to many investors during the past few years. This has caused some to shy away from becoming actively involved within the Forex markets. Is it still possible to enjoy sustainable wealth and financial stability in this day and age? Furthermore, what strategies should be embraced in order to avoid the volatility that has plagued some investors during recent times?
The Rule of Ten Per Cent
The days of the “all-or-none” trade have long since past (if they indeed ever existed). This modern era calls for prudence and circumspect analyses of the Forex markets. Such an approach has been primarily caused by the increased interconnectivity of global markets. Late-breaking news from Asia often has a knock-on effect in the western markets as soon as they open (as one example). Avoiding substantial losses is critical. Cautious traders will normally place no more than ten per cent of their available capital into any given position and conservative investors may not exceed two or three per cent within a single trade.
The (Potential) Power of the Leverage
Leveraging a position has become a powerful method to dramatically increase wealth within a short period of time. As only a portion of the total value of a trade is required, revenue can be generated that would not otherwise be possible. However, the danger here is that losses can also exceed one’s initial outlay. This is not to say that leverages should be avoided, but only that they should be undertaken by those with a great deal of experience within the Forex markets.
Variations in the Thread Strengthen the Weave
Another term for this observation is simply diversification. Currency pairs can be quite volatile and changes often occur from one second to the next. In order to avoid such fluctuations, it is wise to focus upon at least three pairs and utilise these disparate relationships to offset any losses which would occur when trading only a single ratio.
Both Long- and Short-Term Positions
Astute Forex traders will adopt both long- and short-term positions. While short-term positions are used to generate liquidity, long-term assets can be used to build wealth over a period of time. Such principles have been used when managing standard portfolios (a long position in gold to compliment a short position in a FTSE stock, for instance). Any capital placed within a short-term trade can represent a portion of previously accrued profits while long-term strateies are frequently used to develop a “nest egg” over a period of months or even years.
CMC Markets offers the flexibility and the insight required to adopt these and other approaches with ease. In the ever-evolving world of finance, Forex trades are excellent ways to keep ahead of the ever-widening gap between those who struggle to survive and those who are financially stable.