If you planning to start trading the forex market, losing your investment should be your top concern. So part of your strategic plan should involve finding ways on how to avoid losing money in Forex.
It is estimated that over 90% of new traders blow their equity on their first day in the market. According to a survey carried out in South Africa, 70-80% of forex traders fail. This aside, forex is still one of the most sought-after financial markets. The forex market has attracted millions of investors across the globe.
The forex market is ruthless. There are thousands of investors flocking in by day and leaving at the same rate. Many traders are attracted to the forex business due to the high leverage, low commissions, and fees. High leverage ensures that you can trade with a higher amount than your deposit.
Just Like any other skill, forex trading is improved with experience. Usually, you’ll have to fail and learn from your mistakes. The forex market is highly volatile and unpredictable, making errors is expected. Of course, there are ways to avoid losing money in forex to help traders minimize the chances of failure.
The article has compiled feedback from forex traders and financial market experts. It is especially smart to review your trading this period after the Corona Virus pandemic. Here are 13 ways to avoid losing money in forex for both forex beginners and seasoned traders:
Table of Contents
13 ways to avoid losing money in Forex
1. Choose the right broker
The forex market is highly unregulated hence, you must be careful who you invest your money with. Here is a complete guide on how to choose the right forex broker.
It is important to choose a highly reputable and registered forex broker. There are many cases of people losing money to brokers who disappear without a trace. The ideal broker guarantees the safety of your deposit and increases your chances of succeeding in the market. Other factors to consider are account offerings, initial deposit, withdrawal, and deposit policies.
There is a regulatory body in each country that registers forex brokers. In the United States, make sure the firm is registered with the national futures association(NFA) and the commodity futures trading commission (CFTC).
2. Conduct research
Before venturing into forex, make sure you understand the market. Forex is not a game of luck, and no trader can succeed through making guess moves, at least not for long. It is relatively easy to enter and exit trades but most traders dismiss the importance of deep market analysis.
Trading knowledge often comes from experience and live trade. While that could be enough, it is important to learn everything that could affect the market including political and economical factors.
As a trader, conducting this research should be a continuous task. Be attentive to catch changing market conditions, new laws and regulations, and world events. Come up with your trading strategy starting with determining the number of hours you spend trading per day, amount of investment, and short-term and long-term goals. Get to know how to build your trading strategy
3. Make use of demo accounts
Many trading platforms have a practice Account. You are given virtual funds to practice with. With a practice account, the trader becomes better at order entry. Not knowing how to open or exit a position on a real account can cost you a lot.
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It is important to note that practice trading accounts are simulations. They are not as time-sensitive as live trades. The real market moves fast.
4. Keep charts clean
It might be tempting to use all the technical analysis tools that you may have collected. However, using too many at the same time is likely to be less effective. It is not especially wise to use two of the same type of indicator, for example, using two volatility indicators and two oscillators. This is likely to throw you off or even give you opposing signals.
As you use the technical analysis tools, make sure that they form an easy to interpret chart so that you can make more speedy decisions.
5. Have sufficient start-up capital
Many traders get into forex hoping to make quick and big profits. Many don’t think about the benefit of investing enough capital because of the leverage that forex brokers offer. Being greedy is the surest way to lose your money in forex. Traders are advised to set aside several hours during the day. Slow and steady wins are the best way to avoid losing your money in forex.
If you do not have enough funds, it might be better to practice with your demo account and save up. Enough capital guarantees you get bigger profits and have reduced risk. Beginners are advised to use 1% of their initial deposit per trade to avoid making substantial losses.
6. Good risk management strategies
Risk management is a very important aspect of trading. Aim to minimize risk to maintain your capital. The key is having a smart trading strategy. Don’t spend the whole day staring at the charts, instead create several positions and wait. Make sure you utilize platform features such as take-profit and stop-loss.
7. Take responsibility for losses and errors
There is no sure way of predicting how the market will go, trading is exactly that: predicting the future. The only way you can grow in forex is by accepting failure and learning from these mistakes. It is also wise to get to know yourself and understand your trading psychology.
8. Avoid Overtrading
Traders who keep entering and exiting trades out of impulse are more likely to accumulate losses and fees. A forex trader needs to conduct market analysis, set a few trades, and await results. This is why doing your homework and coming up with your forex strategy is crucial.
9. Avoid Risking too much
However experienced you are in forex, avoid placing more than 2% of the available capital. Forex trading is not a gamble and you could lose a lot of money. Also, take several positions to reduce the amount of risk. You can increase the stake amount once your account balance increase.
10. Use reasonable leverage
Forex trading is popular for the amount of leverage it gives to its investors. You can make a killing in forex with as low as $50. The downside is that leverage can deplete your account just as fast as it can build it. Small positions take up less leverage. Beginners are advised to keep the leverage as low as possible.
11. Keep a record
All traders are advised to keep a trading journal to record their losses and wins. These journals record profits, instruments, losses, traders’ performance, and emotions. This trading journal can give you space to reflect and learn ways to avoid losing money in forex. It is a way of learning from your mistakes and success.
12. Treat forex as a business
It might be tempting to treat your forex business as a hobby, seeing that you conduct it by yourself and at home. Treating your trading as a business is a sure way to avoid losing money in forex. Don’t be affected by everyday losses, take them as another bad day in the office. As a business, your trading is likely to experience expenses, uncertainty, losses, taxes, and risk. Also, be keen to plan, set goals, learn from experience and stay organized to have a long successful career.
13. Stop relying on others
As mentioned earlier, do your homework before getting into forex. Successful traders often rely on themselves to make trading decisions. If you cannot trade yourself, have another person trade for you. You cannot grow and learn if you depend on signals from other traders.
Traders fail to succeed in forex due to 3 main reasons: lack of planning, lack of forex knowledge, and a wrong attitude. Once you treat forex as a serious venture that takes up your time pays off. Rushing to make money fast is the fastest way to lose your money. Be careful when using bots or sourcing signals from other people.
Learn from other successful traders and check these ways to avoid losing money in forex!
All the best!