The Brutal
Math
Most retail accounts are not destroyed by bad trading strategies. They are destroyed by basic mathematical illiteracy. In the market, your intuition is your enemy, and statistics are the only truth.
Stay Ahead of the Market
Subscribe to receive news about our exposes and articles first.
The Correlation
Trap
Why 'diversifying' your forex portfolio usually means doubling your risk exposure.
"Diversify your portfolio" is standard financial advice that retail traders fatally misapply in forex. A beginner will often buy EUR/USD and simultaneously sell USD/CHF, thinking they have spread their risk across two different European markets.
Because the US Dollar is the counter-currency in both pairs, they are nearly 100% inversely correlated. If the Dollar gets stronger, EUR/USD goes down, and USD/CHF goes up.
The Double Exposure Math
You haven't diversified anything. You have simply taken a massive double-sized bet against the US Dollar while paying the broker two separate commissions to do so. If the Fed announces an unexpected rate hike, both trades will hit your Stop Loss simultaneously. True diversification requires complex mathematical balancing—a task best outsourced to properly coded Robots that read multi-currency correlations in real-time.
The Hedging
Illusion
How locking a losing trade guarantees its destruction via overnight server fees.
When a trade goes deeply into the red, a terrified trader will often open an equal trade in the opposite direction (e.g., holding a Buy 1 Lot and opening a Sell 1 Lot on the same pair). This is known as "Locking" or "Hedging."
The psychological relief is immediate: the floating loss stops growing. But from a server perspective, you have just initiated a slow, mathematical death for your account.
Frozen Equity
Your equity is now locked at a loss. To exit the lock, you must perfectly time the closing of both trades. Statistically, retail traders close the winning side too early and watch the losing side continue to plummet.
Margin Erosion
Brokers apply negative overnight swaps to both long and short positions due to their internal markups. Every single night at 00:00, the server deducts money from your account for holding both trades.
"Eventually, the accumulated negative swaps will eat through your remaining Free Margin. The lock will break itself via an automated Stop Out, liquidating your account while the price goes exactly nowhere."
Risk of
Ruin
The statistical certainty that risking 10% per trade will result in a blown account.
If you flip a coin 100 times, you won't get perfectly alternating heads and tails. You will inevitably encounter a streak of 6, 7, or even 10 tails in a row. Trading is no different.
The "Risk of Ruin" is a statistical model that calculates the probability of completely blowing your account based on your win rate and your risk per trade.
Risk of Ruin Simulator
Assumed Win Rate: 50%| Risk Per Trade | Consecutive Losses to Blow Account | Probability of Ruin |
|---|---|---|
| 1% | 100 | < 0.01% (Safe) |
| 5% | 20 | ~18% (Dangerous) |
| 10% | 10 | 100% (Guaranteed Ruin) |
Mathematical reality: If you risk 10% of your account per trade, you only need a streak of 10 losses to hit zero. Over thousands of trades, a 10-loss streak is a mathematical certainty. High risk does not guarantee high reward; it mathematically guarantees ruin. This fundamental law is why professional portfolios—and rigorously tested standalone systems like EA Automatic—rarely ever expose more than 1-2% of capital per setup.
Continue Your Risk Management
Leverage & Margin Math
See how excessive leverage accelerates the Risk of Ruin.
Overnight Fees & Swaps
Understand the exact math behind how brokers drain locked positions overnight.
Currency Pairs Anatomy
Learn which pairs actually offer true diversification from the USD.
Live Robot Rankings
See how professional algorithms manage strict 1% risk models in our live tests.