Unveiling the Truth Behind Forex Trading
Navigating the Reality of Forex: Understanding Zero-Sum Dynamics, High Leverage Pitfalls, and Brokerage Strategie
The Allure of Forex Trading
Social media often showcases young traders seemingly effortlessly making fortunes in Forex, even from unusual places like private jets or bathrooms. We label them "InfoGypsies." Despite our 17 years of trading experience, we've never seen trading as easy as they claim. Curiously, after their wins, they often promote specific FX brokers as the best platforms. Truthfully spoken, they do no earn profits via trading. Rather, their revenue often stems from your decision to join the platform they endorse, coupled with a share of the losses you incur. This arrangment means they stad to benefit whether you will loose - it is called revenue share. They will benefit from your losses. The funds retail traders are loosing is revenue stream in FX world. Welcome to the real world.
Mathematical disadvantage of trading/investing FOREX.
Forex trading involves exchanging currencies with the aim of profiting from their value fluctuations. For instance, in the USD/EUR pair, for one trader to profit, another must lose—an inherent zero-sum game. This contrasts sharply with stock trading, where companies' growth benefits all stakeholders. Forex lacks such intrinsic value creation; it's mainly speculative and lacks the investment depth seen in stocks. There is no investment thesis into Currencies, only speculatation and big corpartion and big boys use currencies for hedge. Simple example EUR/USD can not go from 1USD to 4SUD whereas $META goes from 100$ to 400$.
High Leverage is a Killer and FX Brokerage.
"How is it possible that FX brokerages do not charge commissions and where do their earnings come from? As 99% of retail FX trades lose in FX trading, brokers keep their clients in their system without taking them to the exchange – this is the so-called B-Book. Basically, it means that if 99% lose money, the FX broker will take a position against you, and when you lose, your money goes to the broker. T Their role is basically that of a casino provider for you to lose to them. FX brokerage healthy earnings come from your losses, which is why they like volatility and encourage everybody to use enormous leverage. It is a legal dirty game. Using enormous leverage that brokers provide and encourage is the most common reason for accounts getting wiped out. Imagine you use leverage of 500x (meaning max loss of 0.2% before you get wiped out). There are no FX pairs that move less than 0.2% in 24 hours. So if you take a 500x position in the morning, the next day in 24 hours, you will be 99.9% wiped out, as the daily trading range in FX pairs is far larger than 0.2%. The same applies to 100x leverage (max loss of 1%); most FX pairs move within close to a 1% range during a 24-hour period. In 24 hours, you have a big probability of being wiped out.
For example, the EU has a leverage limit of a maximum of 30x. That is why FX brokerages have moved their client search to Asia or Latin America. The less the leverage allowed, the less FX brokerages will earn from clients losing to them. The more leverage available, the more and faster you will lose to FX brokerages. For FX brokerages, it is a marketing game; through your losses, they invest in marketing and need new donors who will lose with high leverage to them and repeat it over and over again. FX brokers' earnings depend on leverage and volatility! If you use leverage over 30x – I would always bet against you, the same as FX Brokers."
Conclusion
In conclusion, trading FX places you at a mathematical disadvantage compared to the equity market due to the absence of value creation. Winning in FX requires someone else to lose, making leverage over 20x a losing game. Ultimately, nobody can defy basic mathematics. Numbers don't lie. My key message: don't go against basic math.