Traders of all levels are captivated by the global forex market, one of the biggest financial markets in the world and a place where profits can be earned, from greenhorns who are just learning about financial markets to well-seasoned professionals with years of trading experience.
Many forex traders enter the market quickly, but then quickly exit after suffering losses and setbacks since access to the market is so easy-round-the-clock sessions, with significant leverage, and relatively low costs.
A commonly-used statistic on the internet is that “95 percent of traders fail.”. However, this statistic has not been proven to be true. In fact, research indicates the real figure may be at least double that.
Research report reveals that profitable day traders make up just 1.6% of all traders.
A person’s goal when they enter the foreign exchange market is to succeed and make money, obviously. Most of the time, they are successful because they follow a structure and have the market act in their favour.
Unfortunately, an average forex trader is doomed to failure since this is a zero-sum game in which each group of traders loses if the other groups succeed.
Trade on any financial market is seen by many as somewhat different from ordinary business. This is one of the biggest misconceptions people have. Based on this belief, there is no need for initial planning and the goal is to capture the momentary opportunity the market offers.
Traders lose money on forex because of this ill-advised psychological attitude.
Foreign exchange trading, or any trading activity for that matter, should never be expected to bring a large fortune in a short period of time. Exceptions are possible, but those who have been lucky are just that – exceptions. Maintaining success in the market requires patience and consistency.
Selecting a wrong forex broker
Though the forex industry is governed by fewer regulations than other markets, it is likely possible to do business with an unscrupulous forex broker.
Forex traders should only open an account with a firm they can trust regarding safety of deposits and overall integrity.
It is also important for traders to carry out more research about the account options each broker offers, such as leverage amounts, commissions and spreads, initial deposits, and account funding and withdrawal policies.
People also believe that they can start up trading and make tons of money with small capitals, another myth about Forex trade that results in losing money.
For small accounts to generate a decent income, it takes time and effort.
In order to generate high returns on small initial capital, smaller accounts need to use appropriate trade sizing. Unfortunately, most traders milk the market by using inappropriate lot sizes and overleveraging.
If you start with a reasonable sum of about $1000, then you can trade with micro lots. Otherwise, you may have difficulty reaching whatever goals have been set.
The road to failure is trading without a plan
As a business, forex trading is no different. It also requires initial planning and strategizing, just like any other business venture. The problem, however, is that most inexperienced traders skip this step and begin trading immediately.
Two things happen as a result: firstly, they lack a set of directions that they are going to follow. Your trades will be all over the place without a specific instrument, a time of day when you will enter the market, a budget, goals for payouts and losses, etc.
Secondly, the absence of structure can easily make even an experienced trader anxious about new markets. In the absence of setting a specific instrument for trading, a specific time of day for entering the market, a budget, and goals for payouts and losses, your trades will be inconsistent.
Managing risks incorrectly
If you don’t manage your risk properly, your trading account may suffer.
Generally speaking, you should never risk more than 2% of your total capital per trade. Whether you are an established trader or just starting out, this applies to you. You can quickly deplete your account if you become overconfident and risk a higher percentage.
For example, you will have no way to mitigate risks and minimize losses if you fail to use proper stop-loss orders.
There are other methods of managing your money, such as trailing stops, to help preserve your profits, while still allowing you to make more