[Capital Management Trap] The Reality of "Account Collapse" Triggered by High Leverage Trading in Offshore FX

Hello, this is Jerusalem.

In the previous article, I talked about risk management in times of crisis.

This time, I will discuss, with my personal experience, how to choose a securities company (broker) when conducting system trading.

When starting automatic trading, many people choose overseas FX brokers.

I myself have also utilized overseas FX brokers for CFDs of Gold with my popular indicator (mainly products from HappyAngel) that I sell, with narrow spreads for GOLD at overseas FX brokers, and with the smallest trading unit for Nikkei 225 stock index CFDs being small (you can trade from 0.1 lots) at overseas FX brokers, thus leveraging overseas FX brokers.

However, overseas FX has a clear drawback (trap) of “account bankruptcy due to high leverage.”

Because overseas accounts can leverage trading extremely, you can aim for large profits from a small amount, but when you have unrealized losses, you may mistake that you can still endure them.

As a result, with just a little volatility expansion, you may not be able to endure the unrealized losses, and the account can blow up (go bankrupt) immediately, and such cases are unrelenting.

In automated trading, the most important thing is not temporary huge profits (which occur with very low probability) but “surviving in the market for a long time and reducing long-term losses.”

To achieve this, it is essential to deliberately keep leverage low and operate with ample capital.

Choosing overseas FX solely because “the leverage works” is dangerous, in my view.

Next time, I will talk about the overwhelming advantage of domestic FX (in terms of taxes), which directly relates to this discussion about leverage.