As a Forex trader, you certainly know that the USD is by far the most traded currency in the world. And you probably also know that USD/EUR is the most traded currency pair in the world. But what about the other currencies? And how important are the U.S. dollar and the Euro in international comparison?
We have evaluated the statistical data from the Bank for International Settlements (BIS) which has been published in this document. All data are daily averages for April 2010.

Forex Market Turnover by Currency Pair

The daily global Forex trading volume amounts to a total of 4 trillion dollars. 28% of this volume is attributable to the currency pair USD/EUR, another 14% to USD/YEN and 9% to USD/British Pound. According to the statistics, these three currency pairs amount for half of global trade volume:

In positions four to ten follow:
• USD to Australian dollar, Canadian dollar, Swiss franc and Hong Kong Dollar
• Euro to Yen, Pound Sterling and Swiss francs
These sum up to an additional 25% of global foreign exchange trading. Altogether, the top ten currency pairs are responsible for three-quarters of all FX trades.

Most Important Currencies in Forex Trading

A similar picture emerges when one considers not the currency pairs, but the single currencies. Because currencies are traded in pairs, the total sum is 200%. As you can see in the following pie-chart, the U.S. Dollar, the Euro, the Yen or the British Pound are involved in more than three quarters of all currency transactions worldwide.

As you can see from this table, significantly less important compared to USD, EUR, JPY, GBP, AUD, CHF and CAD are currencies such as the Swedish Krona or the New Zealand dollar:

U.S. Dollar: 85%
Euro: 39%
Japanese Yen: 19%
British Pound: 13%
Australian Dollar: 8%
Swiss franc: 6%
Canadian Dollar: 5%
Hong Kong Dollar: 2%
Swedish Krona: 2%
New Zealand Dollar: 2%
South Korean Won: 2%
Singapore dollar: 1%
Norwegian krone: 1%
Mexican Peso: 1%
Indian Rupee: 1%
Russian ruble: 1%
Polish zloty: 1%
Turkish lira: 1%
South African Rand: 1%
Brazilian real: 1%
Others: 9%
Total: 200%

That does not mean that the minor currencies cannot be traded because that market is less liquid. Just as an example: every day, Yen and Australian dollar with equivalent of around 25 billion USD are traded. Also with this currency pair, buyers and sellers are matched within a very short time frame during an FX trade.

Please note that not all Forex brokers offer an equally large number of FX pairs. Depending on the broker, these figures can vary between about 20 and more than 100. If you are looking for a broker where you can trade more exotic currencies online, then you should check that figure before signing up.
In our table on BrokerReviews.org we provide an overview of the number of currency pairs for each Forex broker we have reviewed. Over a hundred currency pairs can be traded for example with <easyMarkets, a broker which we recommend you to check out now.

The question of how many traders achieve a profit with Forex trading is often discussed between FX traders or in Forex discussion forums. We have made an analysis and come to the conclusion that only 10-20% of all FX traders achieve to make a profit.

It’s important to select a broker where only a small percentage of traders are losing money. This gives you the best chances to trade profitably these days. And brokers now have to be fully transparent when it comes to this percentage. Our recommendation for starting out is eToro where only 62% of traders are losing money. Click here to get started!

Analysis: Profit in Forex Trading

For our analysis we have randomly selected 50 FX traders from eToro whose data we have gathered from the eToro Open Book. The “Open Book” is just what is says, an open trading book. You can see there in real-time which trader has just bought or sold a currency pair and how much profit he achieved (losses are not shown in the eToro open book). In addition, you can see for every trader his trading statistics. So you can see in what percentage of trades he has made a profit and how his personal income statement looks for the last 30 days. The result is sobering: Only 8 of the 50 traders were able to achieve a profit:

About a third of the traders achieved a total loss or close to a total loss (90% or more lost).

The main statistical values ​​from our analysis are:

• 8 of 50 traders (16%) achieved a profit
• The average loss was -48.5%, the median was -54.7%
• On average, 56.5% of the trades were completed with a profit

The last point is surprising – although five out of six Forex traders made a loss, more than half of the trades were closed with a profit.
If we compare the profit per trader and the percentage of trades with a profit, we get the following picture:

A clear trend can not be derived. Presumably, the percentage of successful trades is not a reliable criterion to assess whether a trader made a profit overall.

Conclusions Analysis Forex Trader Winnings

Our analysis confirms what every trader should already know: Forex trading is very risky, and most traders lose money online. It is therefore extremely important to maintain a good Forex risk management. This means that only a small proportion of the money you have available should be risked in one specific trade. The risk of a total loss can be reduced considerably using this strategy. And that the vast majority of traders lose money is clear. Many small traders compete against the few pros. These professionals can make a profit – at the expense of many small traders. And don’t forget that FX brokers earn money with each trade by earning the spread. It is therefore not surprising that not 50%, but only about 10 to 20 percent of all FX traders make a profit.
Second, even those 10 traders who suffered a 100% loss, on average completed 48% of trades with a profit. This shows that they were trading quite successfully for a while, and then lost all of their money with a few completely failed trades. Thus, while their profit was often only a few percent, their losses were up to 100%: achieving small profits and making huge losses is a very bad trading strategy. It is therefore extremely important to know when to close a position before entering into that position, and then to stick to that decision. This means in practice that you should immediately put a stop loss order on your trades. This will help to reduce the losses to a tolerable level.
As a third consequence, the analysis shows that many traders seem to lack the necessary experience. We recommend to every FX trader to first gain experience without risking real money by trading with a free demo account. A FX broker with an unlimited trial account is eToro:

Click here to open a free demo account with eToro!

What are the best Forex brokers? We have made an analysis and try to show you on our broker reviews website which FX brokers are the most reputable, serious ones and which ones are just scammers. After all, nobody wants to trade with a FX broker that is a well-known scamming company. We will first show you the most common Forex scams and then present you a list with some of the most reputable Forex brokers.

Hint: If you don’t want to read the whole article: the best reputable FX broker in our test is AvaTrade.

Scam and Fraud by Forex Brokers

The typical cases of scam or fraud by Forex brokers are:

Withdrawal of money is not possible: you have deposited money, completed a few trades successfully and now want to withdraw some of the money earned. This money could buy you a new watch, a car or just a fine dinner with wife or a close friend. Unfortunately, while depositing money at that broker was no problem, the withdrawal of your funds seems to be impossible. And your inquiries remain without reply as the customer service suddenly stops answering them. Too bad that you traded at a scam FX broker and have been ripped off.

Bonus deleted: you decided to deposit $1,000 instead of the planned $600 in order to get a higher signup-bonus and start trading. As soon as you want to withdraw some of the money won, the bonus has disappeared. Your inquiries at the customer service department are replied with shady arguments as to why they cancelled your bonus. However, not every case about cancelled bonuses is a scam. Our advice is to read the bonus terms first before you make a deposit. It’s often the case that you must have completed a certain number of trades until you are eligible to get the bonus. By making a withdrawal before completely clearing the bonus, you may void the entire bonus. It is also possible that there was a time limit of for example 60 days to unlock the bonus offer. Thus, it may have been just a misunderstanding and not a rip off through your FX broker.

High spread: there are cases of traders who reported too high spreads at their Forex brokers. While the spread offered might be just 2 pips on EUR / USD, traders are charged a higher spread. Often, this is not a scam by the FX broker: most Forex brokers offer different account types, such as silver, gold and platinum accounts. In order to benefit from favorable spreads, you need to be at least a gold or platinum account holder, for example. So you have to make a high initial deposit in order to be able to profit from the low spreads. Our recommendation is to read the T & C (Terms and Conditions) of your FX broker carefully before making a deposit.

Poor rates for traders: this is a very unfair practice of Forex brokers, because it is difficult to detect. Imagine that your broker offers foreign currencies at a more expensive rate, and that the broker will buy currencies at a cheaper rate than the market price. Even if the difference between the market price and the rate of your broker is only 1 pip, this increases your costs on each trade and reduces your winnings. Such frauds are fortunately rare.

Reputable, Serious Brokers Withoug Scam

So what are the most reputable Forex brokers? And which ones should you avoid? We made an attempt to spot rogue brokers and thus created a list with the most reputable brokers. The list does not include all brokers, but shows you some of the FX brokers that can be recommended for online FX trading.

So how did we create that list of the most reputable brokers? We used the search engine Google. Even though the research was done on Google.de, we think that the results are also relevant for traders from other countries in the world. First, we made a search for the brand name of each FX Broker and counted the number of results in German. For example, the search for “Finexo” led to 12,800 hits. Then we have searched for the company name plus the terms “fraud, ripoff, scam or criminal charges”. In the example of Finexo this led to 144 hits. We could thus calculate a ratio: How many web pages mention scam, and how many pages in total mention that FX broker? The lower the percentage of sites that mentioned scam, fraud or rip-offs, the more serious and reliable that FX broker must be. For Finexo, this gave the low value of 1.1%. Only around one out of hundred German websites that mention Finexo also mentions words like fraud or scam on its page. Of course, this is only a simplification of reality. If someone writes in a forum: “AvaTrade is not a rip-off”, then this would be counted as a criticism of AvaTrade. Nevertheless, we believe that the results of this survey are a good indicator of which FX brokers are serious, reliable companies.

Results Reputable FX Broker

In the following diagram, you can see the ratios of “scam search results” to “all results”:

We have deliberately chosen not to mention the worst three brokers by name – because of the limitations of the analysis mentioned above. The middle three brokers (LiteForex, Forex4You, FXOpen) were significantly more often mentioned together with the terms “scam”, “rip-off” or “fraud” than the best brokers.

Our top 3 list of the most reputable Forex broker is therefore:

1st place: AvaTrade

2nd place: Finexo

3rd place: InstaForex

We have linked to our broker review pages of the three best brokers. Our winner in the list of the most reputable FX brokers is thus AvaTrade. The probably biggest broker in this comparison (AvaTrade scored more than twice as many search results as the second largest broker) seems also to be the most serious broker.

If you want to start Forex trading, then AvaTrade is certainly a very good choice. You can also first open a free demo account to gain some experience without risking your own money.

Click here to open an account at the reputable broker AvaTrade!

The Foreign Exchange market is very big with high liquidity. There are plenty of Forex broker and this makes it so confusing especially for novice traders. Almost no Forex broker publishes any information that provide an impression of the broker’s size, costumers etc. Everybody claims they are “the largest broker” with “hundreds of thousands happy costumers”. This could be true but for most Forex broker it’s far away from the truth.

It makes sense to take a look at the Forex broker’s size although this is not the best criterion when it comes to determine the “best” Forex broker. But the size tells us that there are a lot of costumers with this broker and they seem to trust him. Otherwise they wouldn’t be in business with this broker.
A large Forex broker is also committed to the market and has more pressure to keep certain standards like licences and regulations. A new and small Forex broker could quit the business quick and nobody would really miss them. So the size of a Forex broker doesn’t make the broker serious but it’s a factor you have to consider when you want to choose a proper Forex broker that fits your needs.

How to measure a Forex brokers size?

The problem is to find out how large a broker really are when there are no public information available. We made some analysis that works with indirect measures. We focused on the Forex broker we list in our comprehensive Broker Reviews. We chose three factors that are indicators for the brokers size. When we add these factors together we found our “largest Forex broker”.

Google searches: The Google searches tell us how many people are looking for the exact brand name of a Forex broker. The more people are searching for the brand, the higher is the brand recognition. This is only an indicator of course. But there’s at least a correlation between Google hits and the brand recognition. What we’re looking for is how many people where searching for “eToro” and how many for “Instaforex”.

Google search results: When you type in something in the Google search engine it shows you how many results have been found. If you’re googeling for “eToro” it shows you about 5 million results. This means that Google found the term “etoro” on 5 million websites. Our thoughts are that a Forex broker is larger when it shows more results. Again, this is only an indicator.

Alexa rank: With the Alexa toolbar you can find out how the traffic of a site looks like. This is a nice tool but also not very reliable with low trafficked websites. It’s possible that one site shows an Alexa rank of 1 million and has twice as many visitors in reality than a website with an Alexa rank of 200,000. When it comes to high traffic websites Alexa is more accurate. So if Alexa shows 4000, it’s highly likely that the website has more traffic than a site with an Alexa rank of 10,000. This is the case with the largest Forex broker and that’s why Alexa is a pretty accurate way to determine the traffic of a Forex brokers website.

It’s true that not all indicators are absolutely reliable but we think that when we put these three indicators together we get a pretty good picture and can at least determine what Forex broker is larger than the other. So we have a solid ranking of the largest Forex broker:

Ranking	Forex Broker	Google searches	Search results	Alexa Rank	Website
1.		1	1	1	www.etoro.com
2.		4	2	2	www.instaforex.com
3.		3	6	3	www.avafx.com
3.		2	5	5	www.easymarkets.com
5.		5	4	4	www.forexyard.com
6.		6	3	6	www.fx4you.com
7.		7	7	7	www.finexo.com
8.		8	8	8	tradeviewforex.com

This introduction explains the basics of online trading with currency pairs (Forex trading), gives a brief explanation of the markets and shows the major benefits of online Forex trading.

Forex Overview

Forex (Foreign Exchange) and abbreviated FX are terms that describe the trade of foreign currencies. The Forex trading market is the largest market worldwide. The global trading volume sums up to over 4 trillion U.S. dollars a day. Most transactions in the Forex market are speculative ones. Only a small part of the market activity is done by representatives of governments and of enterprises which need foreign currencies for their day-to-day business activities.

In contrast to trading stocks, the Forex market is not operated by a central exchange, but bases on the “interbank” market, a so-called OTC (over the counter) market. Trading takes place directly between the two trading parties. The main centers for Forex trading are New York, London, Frankfurt and Tokyo.

Forex Trading – Trading Foreign Currencies

Exchanging foreign currencies means buying one currency and selling another currency simultaneously. The two currencies involved are referred to as a currency pair. The major foreign currency pairs are the U.S. dollar to Euro, U.S. dollar to Yen, U.S. dollars to British pounds, U.S. dollars to Australian dollars and U.S. dollars to Swiss francs.
U.S. dollar to Euro, Yen and British pounds account for far more than 50% of the global foreign exchange volume.

Trading with Leverage (Margin)

Because the currency fluctuations are small in the short-term, currency pairs can be traded on credit with a small margin. This means that you can trade currencies with a high leverage, typically 200:1 or even 400:1. A leverage of 200:1 means that you simply have to deposit a margin of 1 / 200 = 0.5% of the value of the currency pair you want to trade. So with $ 1,000 and a leverage of 200:1, you can take control of $ 200,000. If you buy Euro and sell USD at the same time, you speculate that the Euro will increase compared to the USD. If the Euro increases by only 1%, then the value of your invested $ 1,000 has tripled, leaving you with a net profit of $ 2,000.  Conversely, there is also the margin call: if the value of the Euro decreases by half a percent, then your position is no longer covered by your margin deposit of $1,000: the Forex broker software will usually liquidate the position automatically in order to prevent you from losing more than the invested $ 1,000.

Benefits of Forex Trading

Compared to trading stocks, FX trading has some major benefits:

Trading around the clock: in contrast to trading stocks, currency pairs can be traded around the clock. So you can earn money with FX trading during that time of the day (or night) which best suits you.

Liquidity: because the FX market is the largest market in the world, it is extremely liquid. The spread, the difference between the buying and selling rate (bid and ask price) is therefore very low. And the lower the spread is, the lower the costs of a transaction are.

No commissions: opposed to tradings stocks, you can trade foreign currencies without having to pay a commission. Forex brokers earn money by offering different exchange rates to buyers and sellers. You do not have to pay a commission for each trade, nor do you have to pay other fees such as custodian fees.

Leverage: with a leverage of up to 1:400, you can move huge sums of money with only small investments. Please note that your risk is greater the higher the leverage is, which might result in a total loss of your invested capital.

Make money in falling markets: When you buy shares you hope that the stock price will rise. If you want to profit from falling stock prices, you have to resort to other instruments such as buying put options. While trading currencies, you can profit both from rising and falling exchange rates. If you think for example that the Dollar will increase against the Euro, then you buy USD and sell Euro. If you think that the USD will decrease compared to the Euro, then you buy Euros and sell US-Dollars. And even if a currency pair is relatively stable, you will notice small fluctuations in the exchange rate from one minute to the next minute. Using leverage, you can profit from these small intraday movements – provided you choose the right currency pair for your trades.

Dive into the fascinating world of online Forex trading now! Select a broker from our Forex broker comparison table, and start trading online. We recommend you to gain experience with a free demo account first before depositing and risking your own money.

If you want to trade with Forex, you have to pick a Forex broker first. This is easier said than done because there are thousands of Forex broker out there and it’s not easy to spot the right broker. There are plenty of Forex broker that are serious but also a couple of broker that try to scam you. Obviously you have to avoid this and this is the most important criterion of a good Forex broker. Here at Brokerreviews we only list trusted Forex broker that don’t scam. However, we show you how to find out if a broker is a scam or not.

First of all you should use Google. The Internet offers great opportunities for everybody to spread their thoughts. You can use Twitter, your blog or forums to let the whole world know what you think. This is very important when it comes to scams. You can defend others from being scammed just by telling others your experience.

So if you want to know if a certain Forex broker is a scam you should first Google the broker’s name and add “scam” to it. Then you will find results for every single Forex broker there is. Why? Because even if the broker is serious, some people think it’s a scam because they lost. This is how human react when a negative event occurs they did not expect. It’s not their fault but it’s the broker’s fault. Simple as that. This makes it hard to distinguish real scam reports from fake ones. And you have to go with the majority. If 1 out of 1000 people says this is a scam it certainly isn’t. But if 50 of 100 people say it is a scam it surely is. So you should count the scam reports and make an estimate: is this a very big Forex broker or a small one? If it’s small and you can find several scam reports you should stay away. If it’s a big broker you can find a few more scam reports without unfolding a scam.

Once you found Forex broker that don’t scam (we make it easy for you because we only list Forex broker that don’t scam. This saves you some time) you should take a look at other factors like the software of the Forex broker.

A good Forex broker offers either his own platform that has some unique features or simply uses the most common and popular Metatrader platform. A good Forex broker also offers a webtrader where you can trade in your browser without making a download. This is especially important when you want to be independent and want to trade everywhere, not only at your home office PC.
It’s very important that you can get used to the platform very fast. And indeed most of the forex platforms have a decent usability where can find out quick how to trade properly. Etoro is a good example for a unique and good Forex platform that is so easy to use and to trade with.

A good Forex broker also offers some good promotions that compensate for trading. For example, a good Forex bonus. A bonus is money that will be credited to your account after your first deposit. So if you make a deposit of $ 100 you can get a $ 50 bonus (at AvaTrade for example). This is a very nice gesture and makes it easier for you to compensate losses or make even more profit. Of course, you should not pick the Forex broker with the highest bonus. This would be too naiv. But when it comes to find the right Forex broker for you, you should take the bonus into consideration.

The price that you pay is always important. And the price you pay while you trade with currencies is called Spread. In the long term, you have to beat at least the spread if you want to trade profitably. Forex broker offer different spreads and you have to pay attention. Spreads like 6 Pips are huge and almost unbeatable. A good Forex broker should offer a spread between 2 and 3 for the most common currencies. And luckily, most of the Forex broker offer spreads in this direction.
Obviously, it all depends on your own preferences. That means that if a good Forex platform is more important to you than a good Forex bonus than you should focus on the platform and don’t pay too much attention to the bonus a broker offers.
There are also a couple of other factors you have to consider but they may not be important to everybody. That’s why we did not talk about them in detail.

The Forex platform is really the heart of a Forex broker and absolutely critical to the traders success. Every time you want to trade you have to open the trading platform and therefore it’s obvious that you have to like the software. While the  core functions of the trading platforms are much the same and there are only a few significant differences. But some softwares offer important functions others don’t and this is also crucial for your trading success. There are differences especially in the usability and clarity. The eToro platform is clearly tailored for beginners and places more emphasis on clarity than functions. Metatrader 4, however, is a professional forex platform that offers some special functions and doesn’t focus on usability that much. This does not mean that Metatrader is not to be recommended, but that it takes longer to get used to it compared to the eToro software where even your mother could trade properly.

Find out yourself and take a look at the innovative eToro trading platform clicking this link!

In the following, we take a look at the most popular Forex platform and show with screenshots how that platform looks like. We place special value on the clearness of the software, technical analysis capabilities and the process of making a trade. We offer you the chance to take a look at the Forex platforms without registering and downloading it.

The eToro Forex Platform

The eToro platform is without a doubt tailored for Forex beginners, but still offers many useful features and surprises with the depth of advanced features. In the last couple of years, eToro had done a lot to become more attractive for advanced traders. With the integrated eToro Open Book you will get input from experienced traders. Also interesting is the very unique community aspect. On the left side of the eToro software you can see whether a currency is bought or sold at the moment. However, this indicator should be used with caution. Here you can create an account with eToro and enjoy its superior software!

eToro offers numerous analysis tools that can be displayed easily when needed. Examples of the indicators in eToro are: Simple Moving Average, Exponential Moving Average, Williams% R, Momentum Oscillator, Stochastic Oscillator, Linear Regression and more.

The completion of trades is more than simple. The leverage, the position and Stop Loss or Take Profit are set quickly and of course the latter can always be adjusted.

The Metatrader 4 Forex Platform

Metatrader 4 and 5 is the most popular trading platform. Especially because it can be offered by different Forex brokers while the eToro platform is operated only by eToro. Metatrader is used by famous brokers such as easyMarkets, AvaTrade, InstaForex and many more. Here you can create an account with easyMarkets – our top Metatrader broker!

The Metatrader software is completely different than the eToro software and looks way more professional at the first glance:

You can add multiple charts to one map and show desired indicators:

In regards to technial analysis, Metatrader offers everything you can find. We doubt that there’s an indicator you can’t use with the Metatrader software.

Making a trade is in contrast to eToro not that easy. It takes a few minutes until you get used to it while even your mother could make a trade with eToro. But at Metatrader there are no buttons in the overview, which jump directly into your eyes. To make a trade you must right-click on the currency pair and then click on “New Order”. This will open the following window:

Here you have to set a stop loss and take profit. You have to know what you’re doing while eToro suggests certain stop loss and take profits figures.

We highly recommend that you try out Metatrader with a demo account first before you start trading with real money although you’re already used to real money trading. You may experience usability problems while trading. The only way to prevent that is to get used to the software with play money.

One of the most important things for a Forex trader is the observance of basic bankroll and risk management rules. The goal of Forex risk management is to reduce the likelihood of going bankrupt (of losing most of the money in your FX trading account) to a minimum.

It’s quite possible that you as an active Forex trader have not yet read an article on bankroll management. But you will know from experience that the variations of the results of your trades may be large. So the variance – the distribution of the results of your trades over time – can be very high. Maybe it has already happened that you that you closed five, ten or even more trades in a row with a loss. To limit losses, you can use stop loss orders. eToro for example is a Forex broker which easily allows you to place stop loss orders.

To prevent a total loss of the money you have deposited to your FX broker, you should therefore for each trade use only a small proportion of the money you have available for Forex trading. Of course, the smaller the amount you use per trade, the smaller the possible profit is. So if you trade with a conservative bankroll management, you will need more time to double your Forex bankroll. However, you reduce the likelihood of going bankrupt.

To understand the risk management in the area of Forex trading, it is important to distinguish the concepts of Forex risk management and Forex bankroll management:

Definition Forex risk management: all measures to reduce the risk of going broke as a Forex trader. These measures include, in addition to bankroll management, improving your mindset and using, sticking to stop-loss orders and other measures.

Definition of Forex bankroll management: specific Forex risk management measure, which limits the maximum stake per trade to a percentage of the capital stock a Forex trader has available. Example: If you stick to a 5% bankroll management, you may use up to 5% of your entire Forex trading assets per trade. So if you have deposited $ 8,000 at your Forex broker, you may only execute trades where you risk $400 or less.

When choosing how much to deposit at your Forex broker, FX bonus offerings play an important role. With the FX Broker InstaForex for example, you can get a $5,000 bonus. This is of course very lucrative and affects your bankroll decision. Click here to visit the InstaForex website.

Bankroll Management Limits Risk and Losses

The more money you lose in individual trades, the more difficult it becomes to reach the old bank balance again. Let’s say that you have speculated on the wrong currency and 50% of your bankroll is gone: you have lost $ 1,000 and your account balance is down to $ 1,000. To achieve the bankroll of $ 2,000 again, you must double your $ 1,000, so you have to make a profit of 100%. According to the same calculation, you must achieve 400% performance to recover from a one-time loss of 80% of your account balance – an almost impossible task. But you will face exactly such difficult tasks if you use too much of your account balance per trade. Check out the chart here:

If you trade only with one percent of your Forex money and lose 20 trades in a row, then your balance decreases from the original $ 10,000 to $ 8’179, a loss of $1’821. Consequently, you have lost 18% of your online FX trading assets. However, if you use 20% of your assets per trade, then you can lose up to $ 2,000 with one trade. With only five such trades in row with a 20% bankroll management, your account balance will decrease to a meager $ 3’277, a loss of over two thirds of your entire capital!

Forex Bankroll Management and Variance

Variance is mathematically the sum of the squares of the deviations from the mean values divided by the number of measurement points. The standard deviation is the square root of the variance. Even if you have not studied math, you’ll understand variance in the way that the average trader understands it: “too” strong fluctuations in the results in a negative manner.

We have simulated the results of Forex trades in order to give you a better understanding of the possible variations in the results. And even the most successful traders have a high variance of their results! The results of these simulations should show you how important it is to stick to the elementary rules of bankroll management in order to minimize the risk of making a total loss.

We have simulated the following situation: a FX trader executes 1,000 trades. With each trade, he risked $ 1,000 each. In 52% of the times he doubled his invested capital to $ 2,000, and in 48% of the times he loses his capital. Our trader is very successful: He scores an average of 4% return on investment (ROI) on his trades. So per $ 1,000 trade, he makes a profit of $ 40 on average. If he now executers 1,000 such trades, he should therefore make 1,000 x $ 40 = $ 40,000 profit. This is his expected value. In reality, the possible outcomes will be much different from this expected value, depending on whether our trader was lucky or unlucky. What would be the results if 10,000 different traders would make 1,000 trades at $ 1,000 per person with an expected 4% ROI?

The graph above shows the results of these 10,000 traders. The average profit after 1,000 trades is $ 40,000 (blue line). The luckiest of these 10,000 traders would have made a profit of $ 160,000, four times more than the average, although he should have the same ROI. And the biggest loser would have lost $ 80,000 (red line) even though he trades with a positive ROI. So the luckiest trader thus has won an additional 3 times of the expected profit of $ 40,000 (+$ 120’000) while the most unfortunate trader has lost 3 times the expected profit of $ 40,000 (-$ 120,000).

So even the very large number of one thousand trades cannot iron out “variance”. This shows that even successful traders can experience long runs of bad luck with huge losses.

Variance in Forex Trading

We have carried out further simulations with the above example. The following graph shows the probability distribution of the ROI over 500 Trades (red curve), 2,000 trades (blue curve) and 5,000 trades (green curve). We have carried out 10,000 simulations in each case:

If 10,000 times 5,000 trades (green curve) are executed with a ROI of 4%, then we have a narrow probability distribution. The average is 4%, and most results in the bell curve are close to the mean. Only a few times someone executing 5,000 trades will have a ROI of less than 0% or have a ROI of more than 8%. Quite different are the results after only 500 trades (red curve): here probability distribution is flat. Although most of the simulations showed a ROI of 4%, many results were negative.

How strong the dispersion of the simulated results is can be measured with the standard deviation (symbol s). The results are shown in this table:

With 5,000 trades, the standard deviation is only 1.4%. This means that about 68% of the results are within a band of + / – 1.4% around the mean. Around 6,800 of the 10,000 simulations with 5,000 trades resulted therefore in a return between 2.6% to 5.4%. Two standard deviations include 95% of all results. A trader in our simulation will therefore achieve with a 95% probability a return between 1.2% and 6.8%. With only 500 trades, the standard deviation is massively greater, 4.5% instead of 1.4%. Thus 68% of the simulations resulted in a ROI between -0.5% and +8.5%. In other words, 16% of all traders will have achieved a ROI of less than -0.5% after 500 trades, even though these are actually profitable trader with an average ROI of 4%.

Summary of Forex Risk Management, Bankroll Management and Variance

The above calculations should have shown you how huge the variance even for a successful FX trader is. If you are a trader who either doubles or loses his invested capital, we recommend that you use only 1% to 5% of your capital for a single trade. If you invest more, then you can indeed earn more money faster, but you can also quickly deplete your account balance. Individual trades with 10% or more of your assets become a game of chance: You are better off at playing at the roulette table and to enjoy the casino atmosphere, because at least you will have some fun with your money before you lose it

Tip: Increase your income by signing up for a new Forex broker. This will give you a bonus of $ 1,000 and more!

There are a number of traits that one should not possess if he wants to earn money as a Forex trader. Four of these traits are greed, fear and lack of discipline and lack of patience.

Greed

All FX traders want to make money with currency trading. This claim is absolutely legitimate. The reality is, sadly, that the vast majority of traders lose money. And greed is one of the reasons for it. Critical for FX traders is not only to close positions on time when prices move in the wrong direction, but also to realize the profits in the right moment. And greed is one of the characteristics that contradicts taking profits in the right moment.

Greedy traders commit also other mistakes: They do not stick to bankroll management (they want to get rich quick and therefore speculate with too much money per trade) and they have too little stamina. And you need a lot of endurance as a FX trader. Even if individual trades are carried out within seconds or minutes, it is not possible to get rich quick as a FX trader. The chances are minimal that you can quit your job in the same year as you started FX trading in order to earn a living as a Forex trader.

Fear

Like greed, fear is a very poor companion of a Forex trader. Of course, FX traders fear losses. But losses are part of the business. You cannot earn money with every trade. It’s enough, at least theoretically, to close 50.1% of all trades with at a profit.

Anxiety is especially a problem for traders who have little experience, who are too greedy and who are risking too much money on individual trades. Palpitations may belong to online trading – the senses are more alert when adrenaline is flowing through the veins. But if you have the fear of loss with every trade, then you should trade for lower stakes (or even switch to a demo account) or stop trading foreign currencies completely: not everyone is suited for FX trading.

Lack of Discipline

The lack of discipline has already driven many traders out of business. You probably have heard stories like this one: a trader has set a stop loss order, the exchange rate decreases and approaches the stop loss limit more and more closely. Shortly before reaching this limit, however, the trader adjusts the stop loss limit. The trader does not want to close the trade with a loss. And you know the outcome: all too often the price drops even further, and the trader has have lost a significant portion of his capital. Discipline is very important for Forex traders in order to limit losses.

Lack of Patience

A successful trader is patient. He is sure of his cause. He isn’t discouraged by setbacks and doesn’t get distracted from his chosen path.

An unsuccessful trader is the opposite. Once he found a system which earns him some money, he is already altering it in the hope for even greater profits – without knowing for certain whether the system works at all. Or he has tested his system successfully, but then reads of another system that will bring even more profits in less time, and changes his trading strategy (and loses money) rather than to stick to his system which earns him at least a small profit.

Tip: We recommend anyone who starts trading Forex online to first test his skills extensively with a demo account. A Forex broker with an unlimited use demo account is eToro.

Trading online foreign currencies is an exciting and sometimes rewarding activity. But Forex trading is also a very risky activity. So how to learn forex trading without taking too many risks?

If you are a beginner or novice to FX trading, we recommend you to practice first without risking your real money. A good way to do so is to open a free forex demo account. With a free demo account, you can start trading without any risk, as you will only trade for “play money” and not for real money. With a demo account, you are able to trade foreign currencies under real market conditions without risking any of your own assets. You will quickly see it is easy to buy and sell foreign currencies online. But you will also experience that it will take a lot of time and trading skills to become a successful online FX trader.

But before you start trading with a demo account, you should first learn to trade Forex. A good choice for this is the reputable Forex broker eToro. Here you can familiarize yourself on the website with all the important information you will need to become a successful Forex trader. You will find both basic information on Forex, but also manuals for using the eToro trading platform, a Forex trading guide, a glossary and information about Forex Trading in your home country.

Learning Forex Trading Withou Risking Real Money

eToro offers you an unlimited demo account. This is a risk-free way to get started in the fascinating world of online trading in foreign currencies to gain.

Tip: If you are a new customer and register now at eToro, you will also receive access to a free online course eBook.