Six Ways to Avoid Losing Money in Forex

Wednesday, February 17, 2016, PM | Leave Comment

The global Forex market is the largest financial market in the world, boasting over four trillion dollars in average daily trading volume.

The popularity of trading on the Forex market attracts traders of all levels, from those just learning about the financial markets to well-seasoned and experienced trading professionals.

Because it is so easy to trade Forex once you’ve learned the basics of how the market works and thanks to the round-the-clock sessions, relatively low cost and easy access to significant leverage, it’s also very easy to lose money when trading on the Forex market.

In this post, we’ll take a look at some of the best ways that traders can avoid losing money in the competitive Forex market.

Six Ways to Avoid Losing Money in Forex

  1. Do Your Homework

    Just because Forex trading is easy to get into doesn’t mean that you can avoid due diligence. If a trader wishes to be successful in the Forex markets, learning as much as possible about Forex is an integral factor contributing to this success.

    Whilst the vast majority of education about trading comes from live trading and gaining experience, a trader should also learn everything possible about the Forex markets, including the different economical and geopolitical factors which affect the currencies which a trader prefers to use.

    This learning should be a continuous effort, as traders should be ready to adapt to rapidly changing market conditions, differences in regulations and significant world events. As part of this research process, traders should commit to developing a trading plan.

  2. Find a Reputable Broker

    Since the Forex industry has significantly less oversight than other trading markets, there is more risk of trading with a broker who is not reputable or even legitimate.

    Because of concerns regarding the safety of deposits and the overall integrity and trustworthiness of a broker, traders should only open an account with brokers who are registered with a regulatory body for Forex trading, proving that they are legitimate.

    When searching for a broker, it’s also important that traders research the account offerings, including commissions and spreads, initial deposits, account funding, leverage amounts and withdrawal policies offered by a broker.

    Choose a broker who has a helpful customer service team that is willing to provide you with all the information that you need and answer any questions which you may have regarding the services and policies of the firm.

  3. Use a Demo Account

    Almost all trading platforms come with the option for a demo account, sometimes referred to as a simulated account or practice account.

    The purpose of these accounts is to allow traders to place practice trades without the need for a funded account, in order for the trader to practice trading without the risk of losing money and get used to different order entry techniques.

    New traders should never overlook the importance of using a demo account, as simple mistakes such as pressing the wrong button when opening or exiting a trade can cause significant financial loss as well as be damaging to a trader’s confidence.

    For example, it is not an uncommon scenario to see new traders accidentally adding to a losing position instead of closing the trade, and multiple errors in order entry can lead to large losses.

    Aside from the significant financial loss, this type of situation can also be very stressful.

    Practice makes perfect, which is why it’s vital that you experiment with order entries in a demo account before placing any real money on the line.

  4. Keep Charts Clean

    Once a trader has opening an account, it may well be tempting to take advantage of all the different technical analysis tools which are offered by the trading platform.

    However, whilst many of the tools offered are well-suited to the Forex markets, it’s important to remember that keeping analysis techniques to a minimum is vital in order for them to be effective.

    Using the same types of indicators can often result in opposing signals being given, making this a situation which should be avoided.

    In order to make the most of this, traders should remove any analysis technique which they do not regularly use to enhance trading performance from the chart.

    In addition to the tools used in the chart, traders should also work to create a chart which is easy to read and interpret by taking into consideration the chosen colours, fonts and types of price bars.

  5. Protect Your Account

    Whilst there is a significant amount of focus on making money in Forex trading, it’s just as important to learn how to avoid losing money as it is to learn how to make it.

    Correct money management techniques are an integral part of successful Forex trading, and many experienced traders would agree that it’s possible for a trader to enter a position at any price and still make money – what matters is how a trader exits.

    Part of this is knowing when it is time to accept your losses and move on. Always using a protective stop loss is just one effective way to ensure that any losses which you make are within a reasonable amount.

    Traders can also consider methods such as using a maximum daily loss amount, beyond which all positions would be closed and no new trades initiated until the next daily session.

  6. Start Small

    As a trader, it’s time to think about going live when you have done all of the necessary homework, learned the basics, and spent some months trading with a practice account as well as having developed a solid trading plan.

    However, no amount of practice trading can exactly simulate live trading, which is why when going live, it’s extremely vital that traders start small. Until trading live, it’s hard to account for or fully understand factors such as emotions or slippage.

    Additionally, a trading plan which performed immensely well with a demo account could in reality be a failure when used with live trading.

    Starting small gives a trader the opportunity to evaluate their emotions, determine whether their trading plan is useful and gain more practice with order entries with minimal risk.

Visit this online Forex broker to get started with trading today.

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