Forex trading profits

The world of Forex (Foreign Exchange) Trading offers fantastic profit opportunites, at considerable potential risk. As with any investment, profit potential and risk go hand in hand: an increase in potential profits always entails an increase of latent risk. This is a general rule, however the two entities are not necessarily subject to linear increase. How risk and profit potential compare to each other, especially when increasing the leverage of a position, is what distinguishes a good investment from a bad one!

Successful traders know how to gauge these two entities, by calculating the risk/reward ratio for each and every investment they make, i.e. each separate position they open.

Conservative trading strategies will yield between 3-5% monthly profit, calculated on the basis of the entire trading capital deposited into the account. However, this capital should never be risked in its entirety, for any one given position, at any one time. Proper money management dictates risking only a small portion of your trading capital in any given position. So de facto, the % profits yielded by the actually exposed capital in a given position may be far higher than 5% monthly. But Forex Trading is a game of probabilities, played over time – so overall these are realistic figures to be expected.

Short term Power trading, at substantially higher risk, as well as leveraging of your position, will enable even higher profits. But using these tactics, your entire trading capital might be wiped out in a split second.

Especially if you want to use these trading methods with such an extremely high profit potential, proactive measures to manage risk must be taken. One very powerful, and simple way to manage risk is to spread your trading capital across multiple accounts.

For example, the likelihood of 3 accounts being wiped out at the same time is infinitesimally smaller than the same risk applicable to only 1 account! 3, 5 or even 10 accounts using different trading strategies spread your effective risk with respect to the entire invested capital, allowing you to profit from any market movements in different ways, while mitigating the risk of losing all trading capital in one instant.

You can operate multiple MT4s, each MT4 driven by a different trading strategy, using Expert Advisors, Trading Signals, or Live Human Trading. These methods can also be used in combination. For example you can use an EA in order to prevent a human trader (including yourself) to go above or below a certain limit.

The best, actually the only place to implement this kind of diversified risk management strategy is on a dedicated Forex VPS operating multiple MT4 terminals in parallel!

Posted in Financial Transactions in Forex Trading, Forex terminology.