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Benefits of multiple accounts
Written by: PaxForex analytics dept - Thursday, 09 April 2015 0 comments
Once you have developed your trading strategy and managed consistent returns the next step is to further optimize your overall trading approach. The biggest part forex traders need to focus on is risk management. It does not matter what else you work on and how well you will be able to perform, if you fail at risk management you will essentially fail at trading forex as over the long-term you will be faced with unusual market circumstances which will test your forex portfolio.
For example let us take a look at January 15th 2015. Many will remember the day as Black Thursday when the Swiss National Bank took a step which resulted in heavy losses for many forex traders, retail traders as well as professional traders, and bankruptcies for a range of forex brokers. The Swiss National Bank unpegged the Swiss Franc from the Euro two days after the SNB president assured markets that no such move would take place.
The markets were essentially 100% long in the EURCHF and once the artificial peg was broken, the Swiss Franc rallied the most on record and in the case of the EURCHF forex traders were faced with a rally of over 40%. Stop loss orders were unable to be honored and bank basically
turned off the computers handling Swiss Franc and there was no pricing available. Once computers were switched on the EURCHF was off by over 2,000 pips and forex accounts saw negative balances.
Forex traders who implied a strict management profile were prepared for such an unusual event and operate several trading accounts. This means that instead of having $10,000 in one single account, a forex trader with a proper risk profile would have, for example, four trading accounts with $2,500. It is important not to duplicate the trades in each account as that would defeat the purpose. Using multiple accounts gives freedom and flexibility to operate a much safer forex portfolio.
What are other benefits of trading with multiple accounts? Besides creating a safer trading environment, forex traders will be able to separate different trading strategies, different time frames as well as diversify and keep certain currencies per account. For example in one account you can trade only Euro related currency pairs, in another account you will trade US Dollar related currency pairs, in another one Asian currencies and in the final one commodities. The benefits of trading with multiple accounts should not be ignored.