Forex trading is an easy-to-enter market as it is highly liquid and needs minimal initial capital. But this doesnt make it simple. It is a high-risk market that can perplex even the most focused traders. Whether you are new to markets or a veteran of forex trade, you should always be careful and not make avoidable errors that can eat into your profits. Here are some of the most common mistakes that even experienced forex traders make.
1.Lack of research
Currency markets are highly sensitive to macroeconomic news and developments. Entering the market on any given day without updating yourself about the latest happenings is like entering the war field without weapons. Make sure you are well updated at all times of all the present happenings and upcoming events in order to plan your trades accordingly.
Also, pay attention to technical indicators to back your fundamental understanding before you take any trading position. Staying well-informed will help you foresee the direction of the markets and save you from any rude shocks.
2. Misunderstanding leverage
Leverage is one of the most helpful as well as risky tools in currency trade. Leverage refers to the strategy of using borrowed money to increase the potential return of an investment. Since forex trading offers high leverage, traders try to generate more profits with less personal capital. But most of the time, using leverage translates into enhanced loss that you cannot afford to pay back.
So, learn when and where to use leverage to cut your risks. Just because a feature is available, it doesnt mean it should be used every time you trade. Use it only when you are extremely confident of your trade position and are also capable of absorbing the losses in case you end up on the losing side.
3. Trading Without a Stop Loss
This is one of the most common mistakes traders make in the forex market due to the hustle and bustle of the marketplace. A forex stop loss is a function offered by brokers to limit losses in volatile markets if the currency price starts moving in a contrary direction compared to the initial trade.
Having a stop-loss on your trades reduces your risk substantially and protects your capital. So, you should never forget to have a stop-loss order for every single forex day trade you make.
4. Choosing wrong broker
Choose your broker wisely after due research as a wrong decision can attract a lot of troubles. Make sure your broker is registered with the regulator and would provide you access to an efficient and smooth trading platform with minimal disruptions for forex trading online.
You can lose all your money due to the inefficiency of your broker or a sub-standard trading platform that cant connect you properly to a forex exchange. So, if you are a new trader, or if you are working with a new broker for the first time, start slow and gradually pick up pace after testing the credibility and capability of your service provider.
5. Trading Without a Plan
If you are trading in a forex market, devising a trading plan will help you outline your strategy to make money. Your trading plan would decide which currency pairs you would want to trade in, how much leverage you would want to use, your investment goals, your exit plan, risk management strategies, etc.
Once you devise this plan and manage to stick to it even in a volatile market, you will stay in complete control of the situation and manage your trades efficiently even in the worst of situations. Without a plan, your trading may look like gambling and may take you nowhere.
Knowing about such common mistakes that forex traders make keeps your trading behaviour in check and saves you from repeating the same errors. So, stay informed and trade smart.
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