With a daily trading volume of more than six trillion U.S. dollars, the forex market is the world’s most liquid investment platform. Besides offering countless trading opportunities, the forex market carries increased risk exposure as well. However, a proper risk management approach and a workable trading strategy can help traders to make hassle-free earnings with forex trading. In this article, we share the top 10 ways to avoid losing money in forex. So let’s get started;
How to Avoid Losing Money In Forex Trading:
- Educate yourself before starting your trading journey
- Broker selection
- Use Demo accounts
- Keep your templates simple
- Use risk management tools
- Keep your emotions in control
- Select appropriate leverage
- Keep a check of your trading performance
- Treat forex trading as a business
- Do not fantasize about forex trading
1) Educate yourself before starting your trading journey
The forex market is one of the most volatile financial markets in the world. Jumping into it without proper knowledge and hands-on experience can be nothing but suicidal. Therefore, traders need to have sound knowledge and skills to trade forex successfully. We reckon trying to understand factors that move the forex market and may affect your trading decisions. Secondly, learn the basics of technical and fundamental analysis. Identifying the price trend correctly is crucial for successful forex trading and technical and fundamental analysis can help you stay on the right track. Read plenty of information on how the forex market works. Also, don’t forget to follow major economic events before opening your positions.
2) Broker selection
Choosing the right broker increases your odds of success in forex trading. Considering the forex market full of legitimate and dishonest brokers, finding the best one can drive you nuts. Make sure that your prospective broker holds regulation and is available around for at least three years. If a broker is regulated, then you can rest assured that the broker is sufficiently liquid. It also confirms that the company abides by the rules and regulations of its respective regulatory body.
3) Use Demo accounts
Do not attempt to go live unless you are well prepared. Always use a demo account to learn and improve your trading skills. Try practising various money and risk management strategies. Usually, demo accounts come with unlimited expiry, so you can use them as long as you wish. You also don’t have to worry about losing your capital since demo accounts carry virtual funds. Demo accounts do not only build up your confidence but also equip you with the skill set necessary for live forex trading.
4) Keep your templates simple
You might wish to use different technical tools and indicators to start placing trades. There is no harm in doing so, but you need to keep things simple. Using a bunch of tools can make your templates look messy. Especially, avoid using redundant indicators such as oscillators with volatility indicators. The overall environment of your trading screen matters a lot. Keep it as organized as possible. Templates with a neat look may not only help you identify trends more quickly but also enables you to make informed trading decisions.
5) Use risk management tools
It is wise to use risk management tools, such as stop-loss and trailing stops, to stay protected against unfavourable market moves. Although stop-loss might not work against slippage in a highly volatile market, still using the stops can help to close your positions nearest to your desired levels. Try to learn other risk management tools as well. Make sure that you have a well-planned trading strategy in hand because using risk management tools without a sound trading plan might not help.
6) Keep your emotions in control
Emotions can wreak havoc on your trading profits. Make sure to trade facts and not your assumptions. A time comes when you start losing or winning trades continuously. Don’t panic or become too excited. You have to remain calm and composed in each situation. Controlling your nerves and staying focused is the only way to reap fruitful trading results.
7) Select appropriate leverage
Leverage enhances your profit-making potential. With leverage, you can trade more volume with limited funds. However, it also magnifies the risk of loss. There is a chance that you make excessive returns, but incurring loss more than you can afford isn’t worth it. Since the forex market is highly volatile and the risk of loss is higher, therefore it is best to avoid high leverage. Always select an appropriate leverage while opening a trading account.
8) Keep a check of your trading performance
You can’t learn from your mistakes unless you know where you went wrong. Therefore, keeping a check of your trading activities is the best way to move forward. Try to keep a log of your trading activities, such as time, profits, losses, most traded currency pairs, availed leverages, and state of your emotions. Believe it or not, looking back at your past performance improves your chances of success in the future. However, you must identify your blunders and take necessary precautions to avoid committing them again.
9) Treat forex trading as a business
You can’t survive in the forex market if you are not committed to achieving your financial goals. Day trading might help you generate some profits for a while. However, it can’t make you rich over time. In the longer run, you need to take forex trading seriously. Consider forex trading as a business. Carefully analyze variable factors, such as capital investment, trading costs, risk & reward, tax implications, profits, losses, and the element of uncertainty. Once you have decided to start forex trading, make every possible effort to make it profitable.
10) Do not fantasize about forex trading
Forex trading is similar to any other type of business. It takes both – time as well as skills – to make profits in the long run. Do not associate unrealistic hopes with your forex trading business. No doubt, forex trading can help you generate lucrative returns. However, it is also one of the most risky forms of investment. Do not ever trade with the money that you can’t afford to lose. Not to mention, successful forex trading involves a lot of patience and consistency. It is not meant for hustlers in any case.
The forex market is a highly volatile investment platform. In addition to the precautions mentioned above, you need to improve your trading skills with the passage of time. Forex trading is a full-time career that equally demands your devotion and commitment.