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What Can FX Traders Learn From Alexander Kearns’ Death?

Date: Friday, June 19, 2020 10:41 AM EDT

In a very sad set of circumstances, a 20-year-old college student from Illinois took his own life this week following an error with his trading account.

Alexander Kearns had begun trading a leveraged options account out of boredom during the COVID-19 lockdown.

This essentially means that his broker was extending him credit, giving him the power to trade larger position sizes than his equity would have allowed. Due to a technical glitch in the platform, Alexander believed that he had gone into $730k worth of debt on his account. As a result, he chose to end his own life.

The news is deeply upsetting for obvious reasons. But for the many in the financial trading community who understand the pain of losses, and the ample amount of tools available to mitigate them, this tragedy stung even deeper, as it might have been avoidable.

Had the young man had the appropriate knowledge and guidance, as well as access to risk management tools, he might have known that debt that large would have been impossible to accumulate.

So what lessons should new traders learn from this tragic incident, to help protect their funds, minimize their losses, and trade more responsibly?

Choose Your Instruments Carefully

Options trading is a more advanced form of financial trading than simply trading in the spot or futures market.

Options are varying in complexity but certainly represent a more volatile instrument than the spot market.

New traders should, therefore, develop a deep understanding and familiarity with the markets and instruments they choose to trade. Especially before they move into options trading.

Watch Out for Leverage

Leverage is a double-edged sword. The ability to command larger positions sizes than your account equity would allow on an un-leveraged basis obviously opens the potential to achieve larger gains.

However, leverage also increases the risk of suffering larger losses which might be disproportionate to your account size.

This means that you could quickly lose your account and risk going into a negative account balance. That means you would owe the broker money.

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