Overtrading

Overtrading

It might seem odd that an online brokerage would single out overtrading as the first pitfall to
avoid. After all, like brokers in any market, we earn our money from volume, so why would
we try to discourage overtrading? The answer is simple enough: the more successful our
customers are, the longer they’ll be trading with us and the more volume they’ll trade in the
long run. In terms of pitfalls to avoid, overtrading ranks as one of the more easily avoided
risks, since it’s one the individual trader can control as opposed to an intrinsic market risk.
Overtrading typically comes in two main forms: trading too many positions at once
and trading too frequently in the market, or always having an open position. Trading
too many positions at once highlights several strategic errors as well as a very real
financial risk. The financial risk is that too many open positions uses up your available
margin collateral very quickly, which can lead to margin-based liquidations if prices move
Currency Pair Reference Rate (Base Currency) Margin Utilization sufficiently against your positions. When that happens, the
loss is primarily the result of overtrading relative to your
margin rather than simply being wrong in the market. It’s
hard enough to get it right in the market in the first place,
so don’t make it any harder by reducing your flexibility or
margin staying power with too many positions.