09.03.2025
Евгений Лебедев
15
4.5
The Forex market beckons traders with the prospect of easy money, but in reality it turns out to be much more complicated and dangerous than it seems at first glance. Thousands of deals are made here every day, and many beginners hope to get rich quickly. However, even experienced traders with knowledge and strategies face serious difficulties. One wrong decision can lead to disastrous consequences, and overconfidence can lead to complete ruin.
Excessive use of leverage
Leverage is a tool that allows a trader to trade with amounts much larger than his deposit. But it has been the cause of some of the biggest Forex crashes. One striking example is the story of Brian Hunter, a hedge fund trader at Amaranth Advisors. He used huge leverage to trade natural gas futures. When the market went against him, the losses totaled more than $6 billion dollars. This led to the fund closing and losing investors' money. The conclusion is simple: excessive leverage is a time bomb. The more leverage you use, the more severe the losses can be.
Neglecting risk management
Even the most experienced traders sometimes ignore the basic rules of risk management. Warren Buffett once said: “The first rule of investing is not to lose money. The second rule is to remember the first rule.” Many who have suffered large losses have forgotten this. Long-Term Capital Management (LTCM) was founded by Nobel laureates in economics. Their mathematical model seemed perfect, but they didn't account for rare but possible market fluctuations. In 1998, LTCM lost $4.6 billion dollars because they bet everything on volatility staying low. The market went the other way - and the fund went bankrupt.
Overconfidence in forecasts
Trader Joe Lewis, a billionaire and successful investor, decided that the British pound would strengthen. He bet a significant amount of money on the currency's growth, but the pound plummeted. The result was a loss of hundreds of millions of dollars. Even his experience and analytics could not predict how the market would behave. Even if it seems that the deal is perfect, you should not invest all your money in it. Diversification is the best way to protect capital.
Ignoring fundamental factors
Some traders rely only on technical analysis and do not take into account news and macroeconomic events. However, force majeure and unexpected decisions of Central Banks can break any chart. A vivid example is the “Black Thursday” of 2015. The Swiss National Bank suddenly abandoned the franc's peg to the euro. Overnight, the franc soared and thousands of traders lost everything. Brokers went bankrupt and the markets were in chaos. It is always a good idea to keep an eye on the news. Even a perfect strategy can collapse due to unexpected regulatory decisions or force majeure.
Emotional trades
Emotions are a trader's enemy. Panic, excitement, and fear of missing out on profits all lead to disaster. Trader Kyo Asukata of Japan once lost $50 million dollars overnight. He made a huge bet on the dollar against the yen, but the exchange rate changed dramatically. Instead of closing his position and minimizing his losses, he hoped the market would turn around. The result was total ruin. It is important to learn to control emotions. Clearly follow the strategy and do not give in to the desire to “win back”.
How to avoid mistakes and not to repeat the fate of legendary plums
Do you want to save your capital and trade successfully? Apply proven principles:
- Limit leverage - use it wisely, don't risk more than you can afford to lose;
- Manage risk - set stop losses and monitor the risk per trade;
- Don't be overconfident - the market can always surprise you;
- Follow fundamental analysis - news and central bank decisions can break any trend;
- Keep emotions under control - trade according to the plan, not on emotions.
Forex is not a casino, but a game of calculation and discipline. By learning from the mistakes of others, you can avoid your own failures and move towards a stable income.
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