Dangerous Myths About Trading: What Is Really True About Leverage, Stop Hunting and Forex

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By Spencer Li, CFTe · Last updated: 26 October 2026

The three trading myths that do the most damage are that leverage raises your risk, that your broker is hunting your stop loss, and that forex is riskier than stocks. Each one is wrong in a way that matters. Leverage changes how much cash a trade ties up, while your position size and your stop decide how much you can lose. Most stop-outs come from where traders cluster their stops, although a broker that takes the other side of your trade does have a real conflict. And risk lives in how you trade, so forex is no more dangerous than stocks, and it is often the cheaper place to learn.

I first wrote about these myths in 2017. Two of my answers back then were too simple, so this version includes the parts that cut against my own argument.

Why do trading myths feel like common knowledge?

In 1977, three psychologists, Lynn Hasher, David Goldstein and Thomas Toppino, published a study on a strange habit of the human mind. People rated statements they had seen before as more likely to be true than statements they were seeing for the first time, whether or not they were true. Psychologists now call this the illusory truth effect, and it explains most of what you hear about trading at a family dinner.

Listen to the financial news, or to relatives who have never traded, and the same warnings come round again and again, usually meant kindly:

• Trading is very risky because you can lose all your capital.
• Leverage increases your risk.
• Brokers are out to hunt your stop loss.
• Forex is riskier than stocks.

Each repetition makes a warning feel a little more true, and none of them makes it more accurate. So the useful habit is to take each one apart and look at the mechanism underneath. I will take the three that I think cause the most harm.

Does trading with leverage increase your risk?

On 27 March 2018, the European Securities and Markets Authority published a number every new trader should see once. Regulators across the EU had studied retail accounts trading CFDs, which are leveraged contracts on forex, indices and shares, and found that 74% to 89% of retail accounts typically lose money. In the same announcement, ESMA limited retail clients to leverage of 30 to 1 on major currency pairs, and less on everything else.

Singapore had already moved the same way in March 2014, when MAS confirmed a 5% minimum margin on forex CFDs traded by retail investors, a cap of 20 to 1 that it called in line with Hong Kong and Japan. Its reasoning is careful, and I think it is exactly right. A cap on leverage “does not necessarily prevent losses”, MAS wrote, but it “mitigates the risk of retail investors taking on excessive positions”.

So leverage clearly plays a part in those losses. But look at the mechanism, because the leverage ratio does not set your risk on any trade. Your position size and your stop loss do.

Say two traders each buy USD 10,000 worth of a currency pair, with a stop loss 1% below their entry. If the stop is hit, both lose USD 100.

The first uses 20 to 1 leverage and ties up USD 500 as margin, which is the cash a broker sets aside to hold the position. The second uses 2 to 1 and ties up USD 5,000. The trade is identical, and so is the loss.

Now imagine a third trader with a USD 5,000 account who uses every bit of that 20 to 1 and buys USD 100,000 of the same pair. The same 1% move against him costs USD 1,000, a fifth of his account, on one trade, and a few of those in a row wipe him out. He is the one the regulators were worried about and the one the newspapers write about. Leverage made the bigger size possible, and greed did the rest.

Leverage is a lot like fire. It can cook dinner for the whole family, or it can burn the house down, and nobody blames the stove for the second one. I explain margin and leverage ratios in more detail in how leverage works in forex trading.

If you would like a daily routine that keeps your size small without hours at the screen, my free 15-minute swing trader checklist is the one I use myself.

Are brokers really out to hunt your stop loss?

On 20 September 2023, a trader on Reddit’s r/Forex asked: “Is stop hunting by trading providers a problem in forex?” It is a fair question, and the honest answer has two halves.

The first half is that stop hunting has really happened. On 12 November 2014, the UK’s Financial Conduct Authority fined five banks a total of £1.1 billion over their forex trading. Among its findings, traders had attempted to manipulate fix rates and trigger client “stop loss” orders.

Those banks could see their clients’ orders, and a retail broker that acts as a market maker sits in a similar seat, because it takes the other side of your trade, sees your stop, and does better when you lose. In 2017 I wrote that brokers simply want you to keep trading and be profitable. That holds for a broker that earns spreads or commissions on orders it passes to the market. It is too kind to one that is your counterparty, so find out which kind you have before you open an account.

The second half explains most of what traders actually feel, and it needs no villain at all.

Everyone reads the same chart, so stops pile up in the same obvious places, just under the last swing low, under a round number, or just past a breakout level. A pile of stops is a pile of orders that will sell at any price the moment they are touched. A large buyer who needs to fill a big order goes where sellers are sure to appear, the stops fire, and price snaps back once that forced selling is done. It feels personal. Nobody knew your stop was there.

It happens to me too. In my weekly outlook on 5 November 2025, I told viewers that a short position on Reddit, the company this time, was “one of the unfortunate trades, where we actually got stopped out”. As I said then, “the trade direction and analysis was actually correct”, because after the stop was hit, “the market actually plunged like 18%”. Nobody hunted that stop. The stock bounced into it first and then went the way I expected.

So getting stopped out is normal. You do not even need to be right most of the time. Suppose each losing trade costs you USD 100 and each winner makes USD 200. Out of 10 trades you lose 6 and win 4, which is USD 600 lost and USD 800 made. You are up USD 200 while being wrong 60% of the time. Those numbers are made up to show the arithmetic, but the shape holds: the size of your wins and losses matters more than how often you are right.

Do note that the opposite belief is the expensive one. A trader convinced the broker is hunting his stop often stops placing one, or moves it whenever price gets close, and a small planned loss turns into a large unplanned one. I have written about why that urge is so strong in why it is so hard to cut your losses and let your profits run.

Is forex riskier than stocks?

Most of the people who told me forex was dangerous had never traded either market. Risk does not belong to a product. It comes from how much you put on, where your stop sits and whether you follow it, and on a few practical points forex is the gentler place to learn.

The first is size. In forex you can trade a micro lot, which is 0.01 of a standard lot, or 1,000 units of the base currency. That lets you place real trades for a few dollars of risk, and most of what traders learn in their first year is about themselves. How do you react to a losing streak? Can you sit still? You only find out with some real money in the game.

The second is cost. Many forex accounts charge through the spread, the small gap between the buying and selling price, with no minimum fee on each trade, while many stock brokers charge a minimum fee however small the order. So each small learning trade tends to cost less in forex.

The third is time. Forex runs around the clock from Monday morning in Asia to Friday evening in New York, so it fits around a busy job instead of the other way round.

The last difference is in the charts themselves, and the two charts below show it side by side.

Forex pairs/currency futures tend to have less gaps between bars; bars close and open at roughly the same price.

Most stocks have gaps between the candlesticks/bars, due to the opening and closing of the market every day.

Stocks gap because the exchange closes overnight and news keeps arriving while it is shut, while the forex market barely closes at all during the week. A gap makes the reading harder, since you have to weigh the gap alongside the candle that printed. Forex lets you practise reading price action without working out what each gap means first.

What do the three myths have in common?

Each one blames something outside the trader, whether it is the leverage, the broker or the market. And each one hides the real lever, which is how much you risk on a trade, where your stop sits, and whether you follow it.

A platform will hand you 20 to 1 leverage in a second, and nothing in it stops you from betting the whole account on one idea. The market will fill your stop wherever you put it, including in the same spot as every other beginner. Those decisions stay with you, which is good news, because they are also the ones you can fix.

Fixing them is a matter of routine, and routines are easier to keep when they are short. The free 15-minute swing trader checklist is the one I run every day.

FAQ

Does leverage increase your risk?
Leverage by itself sets how much margin a trade ties up. Your risk comes from your position size and your stop. It turns dangerous when it lets you take a position far too large for your account, which is why ESMA in 2018 and MAS in 2014 both limited it for retail traders.

Do brokers hunt your stop loss?
Most stop-outs come from stops clustering at obvious chart levels. Deliberate stop triggering has happened: the FCA fined five banks £1.1 billion in November 2014 over forex failings that included attempts to trigger client stop-loss orders. A broker that takes the other side of your trades has a conflict worth knowing about.

What percentage of retail traders lose money?
In its 27 March 2018 announcement, ESMA said EU regulators found that 74% to 89% of retail accounts trading CFDs typically lose money. That figure covers leveraged CFD accounts in the EU at that time, not every kind of trading.

What is the maximum forex leverage for retail traders in Singapore?
In March 2014, MAS confirmed a minimum margin of 5% for forex CFDs traded by retail investors, which equals leverage of 20 to 1.

Is forex riskier than stocks?
Risk depends on how you trade. Forex lets you start with very small trades, often has no minimum fee per trade, runs 24 hours on weekdays and has fewer price gaps, which makes it a cheaper place to learn.

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Which of these three myths did you believe the longest, and has a stop-out ever made you suspect your broker? Let me know in the comments.

If you are just starting out, my free trading guides cover the basics in order, from reading a chart to managing risk.

And if you want a routine that keeps your size small and your stops honest in 15 minutes a day, grab the free 15-minute swing trader checklist.

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About the author. Spencer Li is The 15-Minute Trader and the founder of Synapse Trading. He is a Certified Financial Technician (CFTe) with 15+ years of trading, run from 70+ countries. He holds a B.Acc and B.BM from SMU. Every trade he takes is public, dated, losses left in. He teaches rules-based swing trading in 15 minutes a day, one system for any market.

Education, not financial advice. Synapse Trading is not licensed by MAS to advise on investment products. Trading carries risk of loss, and past performance is not indicative of future results.

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Educational content only, not personalised financial advice. Trading carries risk, including loss of capital. Past performance is not indicative of future results. Synapse Trading is not licensed or regulated by MAS.