Forex is a popular trading platform at this moment and a huge number of investors are showing in this industry. It is different from the traditional brick and mortar stock market as trades are executed here using the currency pairs of different countries.
Making a profit is not very difficult here if you follow some strict rules. Beginners rush towards this platform but return empty-handed. This is a failing that could be overcome by following some strategies. Today, some deadly mistakes regarding FX will be discussed here so that newbies may avoid some of the possible pitfalls of trading.
Deadly Faults in Forex Trading:
Beginners in the United Kingdom are very reluctant to think carefully and because of their lack of patience, they tend to overtrade. But, one thing must keep in mind. Overtrading does not bring the possible result only the decimation of you capital.
It is often found that new investors execute trades one after another without getting any previous results. This tendency finishes their main investment and makes the account balance zero in the end. Experts know the bad effects of overtrading and for this reason, they depend on the long term financial assets. If you study options trading and start digging, you will realize, higher timeframe trading is more profitable in the options market. In fact, it also reduces the problem of overtrading.
Taking high leverage may work as the two-edged sword. A beginner should not take on too much leverage as it may increase their risk to a greater extent. Generally, FX provides 1:10 leverage ratio for newbies and sometimes this ratio may vary to the extent of 1:50. Getting the best leverage helps an investor to invest money on the Forex in the lowest investment. That means if an investor invests $10, it can work as a $100 investment using the power of leverage.
However, rookies must keep in mind that leverage is basically a loan from the broker. The investor must return the money to the broker later, and taking high leverage means that he has to return the money from his main account if he experiences a loss. Studies show that 60% of the beginners make their account zero due to inconsiderate use of the leverage option.
3. Take profit order
This is a great technical option in the FX chart which helps you to close the trading account automatically after a certain amount of profit is taken. It is found that beginners are very careless about the setting up of the profit goal as they do not know what they exactly want. Because of a lack of proper planning, they do not set a take profit order.
Due to greed, some investors also set the take profit point in a longer distance than the moving average. This type of thing is very detrimental to a trading career, and you must set it up in such a way that it makes sense. Every trader knows what their skillset is. Based on this he may expect to have an idea of how much profit he may make. One should not exceed one’s skillset and must try not to set the take profit point higher.
4. Stop-loss order
Stop-loss order helps to save your account from the hit of an uncertain downtrend. Greenhorns do not set a stop-loss order which is very dangerous. This is because, in a sudden bearish market, they may take a big loss.
Experts set a stop-loss order after buying a financial asset because it can protect them from the burden of a heavy loss. When a trade reaches a low and touches the specific point, it closes the trade without the need for the trader to be present.
To conclude, it can be said that avoiding the common mistakes is crucial in FX trading as it helps to save the account to a greater extent. Without maintaining an appropriate trading practice schedule, you may shorten the duration of your trading career.