Quote:
Originally Posted by SnerpGoodWord  Here's a basic question: if you refuse to sell at a loss, and instead average down, what happens in the event the price of the security (or FX pair or derivitive) you're trading goes to zero?
Answer: you lose everything.
Averaging down produces only the illusion of profits - long strings of marginally profitable trades followed by one huge blowup. It's like a reverse lottery for the misinformed. |
The price of currencies never goes to zero, certainly not within this context. However, if you seriously believe this is a risk for a particular currency, you do something very simple: instead of going long on it, you go short on it. No currency, certainly no major currency, will ever simply collapse to nothing without warning unless there is a crisis so big that your trading account will be the least of your worries. Another simple solution is to trade multiple pairs with at least 4 currencies total. You don't necessarily need to average down to such an extent that the collapse of one currency can kill you. In the context of stocks, the same applies.
I understand what you are saying but the fact is, the kind of blowup necessary to destroy the account of a serious trader would be so severe that the only security against it is learning survivalist skills. You are more likely to lose the money through non-trade related matters.
The only serious barrier to this is capital. If you don't have enough capital, lot sizes will force you to risk too much in any given trade.