The global forex market does more than $5 trillion in average daily trading volume, placing it as the largest financial market in the world. Forex’s popularity appeals to forex traders of all levels. And since it’s easy to trade forex, it’s also very easy to lose money trading forex. Here are some ways to avoid or stop losing money on the forex market.
Study before Trading
True, forex trading is easy to start, but it doesn’t mean you won’t have to do your homework before taking the plunge. Learning about forex is crucial to a trader’s success in the market. And even if a huge slice of learning comes from live trading and experience, a trader should learn everything possible about the forex markets, including geopolitical and economic factors that affect a trader’s preferred currencies.
Take Time Searching for a Great Broker
The forex industry has much less oversight than other markets, so it is possible to end up doing business with a not-so-reputable forex broker. Because of the concerns about the safety of deposits and the overall integrity of a broker, forex traders are advised to only open an account with a firm that is a member of the National Futures Association and that is registered with the US Commodity Futures Trading Commission as a futures commission merchant. Each country outside of the United States sports its own regulatory body with which legitimate forex brokers should be registered.
Use a Practice Account
Nearly every trading platform come with a practice account, which is sometimes called a simulated account or a demo account. This kind of account let traders place hypothetical trades without a funded account. Arguably the most important benefit of having a demo account is that it allows traders to become familiar with order-entry techniques.
Protect Your Trading Account
Even though there is much focus on making money in forex trading, it is important to learn how to avoid losing money. proper money management techniques are crucial to a successful trading career. Many seasoned traders would agree that one can enter a position at any price and still make money—it’s the manner in which you get out that matters.
Part of this is learning when to accept your losses and move on. One effective way to do that is to always use a stop loss order, which enables you to put a cap on the amount of potential loss you may have.
Use Prudent Amount of Leverage
Forex trading is quite unique in the amount of leverage that is afforded to its participants. One of the reason that forex trading is so attractive is that traders can make potentially large profit using only a very small investment.
If properly used, leverage does give you large potentials for growth. On the other hand, leverage can just as easily amplify losses. A trader can control the amount of leverage used by basing position size on the account balance. Even though the trade could open a much larger position if he were to maximize leverage, keeping the position small will effectively limit the risk.