I just read an article about an german guy losing 250k € in few minutes. I asked myself how is it possible? What did he wrong? In this german article you can read that this guy was not investing, he was trading. He was trading in forex and lost 250k €.
He opened an account with a forex broker, and added 3000 € on it. He traded currencies like EUR/USD and CHF/EUR and such things. He lost and won money by trading. Every time he set up a stop loss to be safe. What did he doesn’t know? That a stop loss is not a guarantee that his position will not be sold to the stop loss price automaticly. A stop loss is only a “tool” which will limit your loss by selling your position to the “market price” once stop loss price reached.
On 01/15/2015 the switzerland national bank gave up the minimum price of 1,20 CHF to 1 EUR. It was a surprise for everyone and a really bad thing for everyone who was invested in CHF/EUR. Every Trader was invested by a long position. And the price of CHF was falling down abruptly. The value of 1 EUR was only 0,90 CHF anymore. When a price is falling abruptly and you’ve set up a stop loss, the stock/currency/commodity will be sold to the next market price. The issue of supply and demand – that’s are the reason for.
The guy mentioned in the article invested 3000 €. As he bought CHF it was around 3600 CHF, so he lost around 900 CHF in few seconds. It would be bad enough, but the most of traders are trading with leverage. The leverage was 1:300, that means the loss of 900 CHF was 300 times higher as normal. If you are trading with leverage effect the winnings could be amazing, but the losings too.
I guess the conclusion is to know the