💱 The Combination of Trading Cost and Risk as Your Worst Enemy

When trading with 1:1 leverage, your trading cost and trading risk remain relatively low. But when you trade derivatives, both your risk and transaction costs increase significantly.

Trading risk, combined with trading costs, is the primary reason why traders lose money over time. Let’s break them down below.

Highlighting the Impact of Trading Cost When Using Leverage – An Example with EUR/USD

If you trade Forex currencies, the trading cost includes the spread between the Ask and Bid, and in some cases, volume-based commissions (if you're using an ECN/STP broker). In this example, we’ll focus only on the spread and ignore any commissions.

When trading the most popular Forex pair, EUR/USD, the trading spread typically ranges from 0.6 to 1.8 pips. You may find even tighter spreads, but again—we're assuming no commissions.

In simple terms, the EUR/USD spread represents about 0.00006 to 0.00018 of the trade’s value. To demonstrate, let’s assume an average spread of 1.5 pips on EUR/USD, with no additional fees.

🔍 Example:

A trader opens a CFD account (no trade commissions, just the spread) and deposits $1,000.

If the trader opens a position of one micro lot ($1,000), the cost is:

■ $1,000 × 0.00015 = $0.15

But traders don’t usually open a $1,000 account just to trade $1,000. In our example, the trader is highly speculative and uses leverage of 100:1. That means with $1,000, he risks one standard lot ($100,000).

In this case, the trading cost for one EUR/USD trade is:

■ $100,000 × 0.00015 = $15.00

That may seem like a reasonable cost, given the profit potential. However, this is the cost of just one trade. Day traders—especially beginners—often make 5 to 15 trades per day. Let’s assume 5 EUR/USD trades per day.

■ 5 trades × $15 = $75

Over a 5-day trading week, this trader would pay:

■ 5 days × $75 = $375

👉 In total, the trading cost for just one week would be 37.5% of the trader’s account.

Read more: Trading Practices to Reduce Costs and Manage Risk

📌 A FEW BUT IMPORTANT TRADING TIPS FOR STARTERS

 Here are some simple trading tips for beginners, along with links to relevant resources on TradingCenter.org.

The Tips & Links

• Avoid getting emotional with your trades. Emotions help us connect with others, but in global financial markets, trading based on emotions can be disastrous.

• Learn to accept losses. Before you can earn consistently, you must accept losing trades. Recognize your mistakes and avoid repeating them.

• Avoid high trade leverage. Professional traders rarely risk more than 2% on a single trade—they know why. 🔗 The Optimal Trading Leverage Formula

• Learn from experienced traders through forums, books, seminars, and other resources. 🔗 Trading Seminars

• Be patient. Trading wisely doesn’t happen overnight. Focus on improving your trading process—success comes from the process.

• Technical analysis rules the short-term, while fundamental analysis rules the long-term. When both align, a strong swing trade is possible. When they agree, don’t hesitate to take profits. 🔗 Technical Analysis Guide

• Study charts and look for patterns from the past. Human behavior repeats, and so do chart patterns. 🔗 Chart Patterns & Probabilities

• Timing is key to successful trading. It’s better to skip a trade than to trade at the wrong time.

• Constantly monitor volume and volatility. Sudden changes can signal a price reversal. 🔗 Wyckoff Method

Read more: Trading Tips for Starters

📜 12 BASIC RULES FOR EQUITY TRADERS

These are some essential rules that every stock trader and investor should know.

1st Stock-Market Rule: “The Market is Uncertain and Unpredictable”

You can’t predict the future—and if you could, there’d be no point in wasting time investing in stocks.

• Don’t try to outsmart the market. Instead, prepare for different possible outcomes and base your strategy on probabilities.

2nd Stock-Market Rule: "Portfolio Diversification is Mathematically-Proven"

Always keep your portfolio diversified. Portfolio diversification has consistently been proven right through math and works across all asset classes.

• Spread your investments across asset types, different securities, countries, and currencies. 🔗 More: Risk-Adjusted Portfolio Performance Ratios

3rd Stock-Market Rule: "Don't Compete with Smart Money in the Short-Term"

If you're trading intraday, you're going up against expert traders and institutions like hedge funds and dealing desks. These are the professionals known as ‘Smart Money,’ and they have clear advantages over individual traders. Avoid day trading —It is better to develop as a swing or long-term investor. 🔗 More: Dumb Money vs Smart Money (Key Indicators)

• Smart money operates quietly and can't be outplayed by retail traders in short periods.

4th Stock-Market Rule: “Buy the Rumor, Sell the Fact”

Selling the news is a common tactic among professional traders.

• Rumors are usually reflected in stock prices early on. Once the news becomes official, the opportunity is often gone.

Read more: Stock Market Rules