How to Avoid Losing Money When Trading Forex
Forex trading has made a name for itself in recent years, for some it has become a lucrative side business and for others, an expense. However, what are the key factors one must consider when trading forex and how can you protect yourself against forex loses?
Given the liquid and highly leveraged nature of forex, it’s little wonder that many investors see the potential to make huge amounts of money by trading currency.
However, the figures don’t completely bear this out, with approximately 70% of forex accounts regularly recording losses.
In this post, we will look at the various ways in which you can avoid losing money as a forex trader, as you look to minimise losses and boost your chances of succeeding over an extended period of time.
- Choose the Right (and Reputable) Broker
Let’s start with the basics; as the journey to avoiding losses as a forex trader starts with the identification of a reputable and viable brokerage platform.
OK, we hear you ask, but how do I go about this? Well, you need to begin by ensuring that a potential broker is fully licensed and regulated by the Financial Conduct Authority (FCA), with this the central governing body for the financial services market as a whole.
Next, you’ll need to consider the range of features and technical indicators available through each service provider, along with the range of forex trading platforms that are accessible.
This way, you can make a selection that’s both well-regulated and compatible with your particular trading strategy and ethos.
- Utilise a Demo Account Before Trading With Real Money
Most trading platforms also offer you access to a so-called “demo account”, which enables you to trade in a simulated and real-time marketplace without risking your hard-earned capital.
Such a feature can usually be used for a period of between three and six months, while they provide the ideal window of opportunity in which to hone your trading strategies and experiment with particular indicators.
It’s also wise to streamline the analytical processes that you utilise at this juncture, in order to simplify the decision-making process and enable you to execute even short term trades quickly and in real time.
- Start Small and Make the Most of Risk Management Measures
When starting out in a volatile marketplace such as forex, it’s also imperative that you utilise proper money management techniques if you’re to achieve long-term success. From a strategic perspective, this requires you to start small as a novice trader, before scaling your efforts organically over time.
This ethos should be applied across every single aspect of your forex trading experience too. For example, we would recommend starting out by trading just one or two major currency pairings, as this minimises volatility and enables you to leverage inflated liquidity to your advantage.
You should also focus on controlling the amount of leverage that you use, as while even reputable brokers may allow you to open positions of 100:1 in relation to your initial deposit, this can also increase your exposure and increase the risk of sizable losses.
You may also want to consider keeping a trading journal, as this enables you to chart your individual orders and learn from successes and failures over time.
On one final and important note, it is very imperative to ensure that any money you deposit into your forex accounts is money that you can afford to lose and remember to never depend on winnings. Following this golden rule, you can be sure that your trading is both enjoyable and responsible.