Forex Traders Should Avoid Overleveraging

Online, May 11, 2013 (Newswire.com) - Online investment and forex trading resource Independent Investor has today warned forex traders to guard against overleveraging, as one of the most costly trading errors and the potentially destructive consequences it can deliver.

Overleveraging in Forex, similar to overtrading, occurs when traders take on positions that are too highly geared for their capital to withstand, resulting in significantly higher than average risks and creating the possibility of an account-wrecking scenario.

If the markets turn against a leveraged position, losses accrue quickly and ruthlessly, according to IndependentInvestor.co.uk, with a broker margin call likely to have the effect of liquidating your account including positions in progress unless losses are covered.

A spokesperson for IndependentInvestor.co.uk said the threat of a margin call and the possibility of significant leveraged losses makes it all the more important for traders to use leverage sensibly, and in a way that benefits and strengthens their account.

"Overleveraging is an easy habit to fall foul of, and one that can be the ruin of your trading account if you're not careful. Leverage is a magnificent tool for traders, because it enables them to make more money in less time. In forex, it serves to liven up otherwise stagnant, stable currency markets to make them a place where fortunes are made and lost in the space of minutes. The difficulty lies in knowing when to stop with leverage, and while its tricky to know how much precisely constitutes too much, you need to consistently think about covering your back in the worst case scenario."

"Where leverage is involved, worse case scenario results are a lot worse than they might otherwise be, so it's important to make sure your portfolio isn't too heavily leveraged to cause problems. No one trade should be in a position to bring down your account, and you should strive for as much diversity as your capital and your patience can sensibly manage. Forex trading doesn't have to be a sprint to the finish line - if you take your time and play the markets sensibly, you can still do well over time. By keeping a cool approach to leverage, you can avoid this often costly error of ramping the gears up a notch too far."

About:
One of the most visited investment sites online, IndependentInvestor.co.uk is well regarded as a leading authority on trading and investing online. Aimed at individual traders looking to find their way in financial markets through self-managing their capital, IndependentInvestor.co.uk provides extensive resources and training materials designed to help ordinary traders shape a more developed, successful outlook on financial trading.
As one of the industry's leading comparison sites, IndependentInvestor.co.uk offers price and service comparisons between the best financial brokers across a range of different instruments and markets, including forex, spread betting, contracts for difference and futures trading, to help traders find more preferable terms for their trading.