The Forex market is the most largely leveraged market in the entire world. This means that traders acquire debt to take on larger positions, instead of just trading with the cash they have on hand. A standard margin would be set at 2:1, this means that traders must put up at least R50 cash to control R100 worth of stock. In Forex the leverage may increase dramatically, some brokers give leverage up to 1:800. This means that you need very little capital to trade with large amounts of money.
Retail traders can literally double their accounts overnight or lose everything just as quickly. This is only if they use the entire margin they are given, although most professional traders only use 10:1 leverage. They never assume too much risk and this is how they stay profitable. Regardless of how much risk they use and how much they trade, every trader uses stops. Stops are key when trading in the Forex industry. Most big market players understand that stops are crucial when trading, and creating long-term success in the market. Trading the markets without stops, traders will face forced liquidation in the form a margin call. Some traders have a lot of money to hedge losing bets, however this is not normally the case with new retail traders. Because of the high amount of leverage wen trading Forex, stop hunting has become a regular practice in the market. Although it may have negative connotations to it, it is very normal and legal when trading. It should be noted this is called flushing out the weak trades, it is called this because it is so easy to read. Many traders put their stops around numbers ending in “00”. This is natural human instinct and the big market players take advantage of this. There is a defense for retailers when it comes to stop hunts. Retail traders should get in the minds of the big market players and try to anticipate where the stop hunts will be. When they do this, they can then create more profit for themselves when trading. It is important to take advantage of the stop hunts, because if you dont, the stop hunt will take advantage of you. One way that traders can see stop hunts is be looking for the “00” in the charts and places market limits close or around those numbers.
Stop hunts do not have to be a bad thing, for some traders they make a lot of money trading these stop hunts. They do take a lot of people out of trades and close many accounts,ending trading careers without warning. Traders should have enough information about stop hunts to defend themselves against this trading strategy. It should also be known that some broker stop hunt their own clients, this happens especially in South Africa.
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