The international forex market has a daily average trading volume of more than $5 trillion, thus being the major financial market globally. The popularity of forex attracts different levels of traders, from beginners who are learning about financial markets to seasoned traders who have been in the game.
Trading forex is easy due to the availability of round the clock trading sessions, low costs, and significant leverage. However, it is easy to suffer a monetary loss during forex trading. Below are ways through which you can prevent loss of money in forex:
Do your research
As a new trader, you may be asking “how does forex work?”.
This question should push you to research on forex trading. Even though it is easy to get into forex trading, conducting thorough research is important.
Your success as a trader in this competitive financial market is dependent on the information and knowledge you seek about it. While most learning comes from experience and trading, you should learn all there is to know about the forex market beforehand.
Research is an ongoing effort and you must be prepared to adapt to changing regulations, world events and market conditions. A trader’s research should include coming up with a trading plan. This will allow you to evaluate and screen investments, determine your long and short-objectives and the amount of risk that should be taken.
Find a reliable broker
Because the free industry has less oversight compared to other financial markets, the likelihood of doing business with a less-reputable broker is high.
Because of safety concerns and broker integrity, a forex trader should only open an account with a broker that is registered with the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) as a merchant. These are the regulatory bodies in the U.S, which ensure that the futures merchants operations adhere to a set of rules to protect traders.
Open a demo account
Almost all trading platforms and brokers offer traders a demo account, which is also known as a practice or a simulated account. These accounts help traders place practice traded without funding.
The most important benefit of opening a demo account is that it helps you become more experienced in trading techniques. Pushing the wrong button when getting into or leaving a position can be damaging to a trading account. Multiple errors in entering a position can lead to large losses.
Apart from the financial implications, making the wrong move because you are not familiar with a platform or trading can be stressful. With a demo account, you will know which moves to make and which not to. Practice makes perfect.
After conducting independent research, practicing on a demo account and coming up with a trading plan, you may be ready to go live and start trading. Regardless of the practice you have done, it is advisable to begin small when you start trading.
Factors like slippage and emotions cannot be accounted for until you start trading. Despite having a solid trading plan you might fail terribly once you start trading. When you start small, you can evaluate your emotions and trading plan.
Also, you will be in a position to gain additional practice when it comes to entering orders without risking your trading account.
Use good leverage
Forex trading is attractive to traders because they have the chance of making large profits from small investments. When used properly, leverage provides great growth potential. However, leverage can lead to great losses too.
Traders can control the leverage used by using the account balance to base position size. To maximize their leverage, traders can open large positions. However, small positions limit their risk.
Treat forex trading as a business
Forex trading is not a game. The minute you start investing your money into forex or us stock market, you should start treating it as a business. As such, keep in mind that personal wins and losses are not the main focus in the short-term.
When it comes to forex trading, what matters is how your trading performs over a period. Avoid making emotional decisions after any wins or losses.
Forex trading incurs costs, taxes, uncertainty, losses, and risk. A business rarely becomes profitable overnight, which is the same when it comes to forex trading.
Patience, planning, organization, learning from failures and successes as well as setting rational goals will help you have a successful and long forex trading career.