Leverage Cuts Both Ways
I met up recently with a lady who was interested in my 8.52% per month investment scheme. She wanted to find ways to quickly reduce her debt, which made me advise her not to come in to the investment scheme because of its high risk.
I found out she had incurred the debt burning her fingers doing FOREX futures. It was nothing new to me. Too many of us have been burnt with leverage. Leverage is like a knife - it can enable you to cut something well, but if used carelessly, you cut yourself. And if used criminally, it can kill someone.
Unlike spot trading, where you immediately pay on the spot and hold on to the actual security (stocks, in the case of the stock market, or currency, in the case of the FOREX market), futures itself is a promise to pay in the future at an amount agreed upon now. Since there is no floor or ceiling either way, you can get burnt for more than the capital available, unlike spot trading. Futures really, should be used by those who are truly interested in locking their rates, rather than the speculative use many futures traders use them for.
And whether spot trading or futures trading, everything is compounded by margin being used. All margin contracts I know of is biased towards the lender, and the margin trader has to make good whatever losses, even if it is more than the capital available.
We should never enter into contracts where we can lose more than the capital we put up. It is a very dangerous way to ruin our financial lives.
I found out she had incurred the debt burning her fingers doing FOREX futures. It was nothing new to me. Too many of us have been burnt with leverage. Leverage is like a knife - it can enable you to cut something well, but if used carelessly, you cut yourself. And if used criminally, it can kill someone.
Unlike spot trading, where you immediately pay on the spot and hold on to the actual security (stocks, in the case of the stock market, or currency, in the case of the FOREX market), futures itself is a promise to pay in the future at an amount agreed upon now. Since there is no floor or ceiling either way, you can get burnt for more than the capital available, unlike spot trading. Futures really, should be used by those who are truly interested in locking their rates, rather than the speculative use many futures traders use them for.
And whether spot trading or futures trading, everything is compounded by margin being used. All margin contracts I know of is biased towards the lender, and the margin trader has to make good whatever losses, even if it is more than the capital available.
We should never enter into contracts where we can lose more than the capital we put up. It is a very dangerous way to ruin our financial lives.
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