Have your ever think why are you invited to trade?
Imagine situation where you have house - it doors always open anyone can come in, eat your food, sleep in your bed. Is it sounds logical? I think not. So banks, brokers, institutions let you come in and make money? It not like it looks reality is different all system is created for one goal - to take all your money from you. And you know what 95% of retail traders loose money over long run. There was a post by David Rodriguez from www.dailyfx.com they look through 43 million real trades to measure traders performance and numbers are same most traders loose money you can find article here
The secret key in all system is margin, and leverage.
These two things what makes system to work. And most of the time it works not in favor of retail trader. As example if you using 1:100 leverage and your account is 100$ you are borrowing 9900$ to trade and providing 100$ as insurance for broker what is called margin. Where those money comes from and what is price? Money comes from institutional Banks they lend those money for Brokers with fixed interest rate. Brokers gives it as leverage for retail trader. Retail trader pays all interest , pays commissions for broker and exposes himself to the market volatility and risks. So you really think that broker or bank will lend you 9900$ if you have in your pocket just 100$??? They really doing it because wants you to succeed in trading? If you really think like this that is first mistake in trading I done it in the past as well. If you don't use leverage there is no borrowed money, there is no overnight financing, there is no stops you basically can hold position forever, you are not forced to close position when price falls. You buy 1000$ dollars and its the same 1000$ dollar no matter price is 1.10 or 1.14 against Euro the amount is the same. But when you trade leveraged your time to hold position depends on your margin and price direction, you are easy target for hunt. Leveraged traders add liquidity to market and basically helps bigger players to fill orders when there is no liquidity to do it. In 2016, it was reported that volume from retail foreign exchange trading represented approximately 5.5% because we know that 80% of market belongs for top 10 fx banks who basically just trade spread and makes market for clients 5.5% is a huge number its approx $282 billion in daily trading and they all leveraged. So imagine how much money such size position can make in forex spot. If one lot ($100000) moves 100pip in spot trader basically get 1000$ profit or loss. 282 billions a day its almost 3 millions lots. Its impossible that banks who lend you money to trade let you take such big profits from them. Its small piece of cake you can take it or reject it. In my next post I will try to talk a little bit about orders in market.