Five Ways to Avoid Losing Money on the Forex Markets

The foreign exchange market is the largest financial market in the world, boasting a daily trading volume in excess of $4 trillion. It is an investment arena that holds a particular allure for the inexperienced and novice investor, thanks to its flexibility, low costs, and generous leverage.

However, just because it’s accessible, it doesn’t mean that it’s an easy market. For those who are successful, the profits can be breathtaking; for those who are not so fortunate, so can the losses. If you don’t want to become one of the foreign exchange’s many victims, follow these five top tips today.

Tip One: Do Your Homework

Forex is as much a science as it is a game of luck, and like any academic pursuit, its scholars need to study in order to do well. Although it is often depicted as a quick and glamorous way to make a fast buck, the foreign exchange market is far from the idealised opportunity that so many novice traders try to take advantage of.

In order to succeed, you’ll need to devote long hours to learning your craft, and be prepared to keep careful logs that allow you to study your progress, spot your mistakes, and refine your technique.

Tip Two: Choose Your Broker Wisely

In the early days, not all of the knowledge you need can come from books and industry publications. As much as some people’s pride stands in the way of asking for help, that’s exactly what you’ll need.

It’s incredibly important to choose a broker like OANDA that can provide the level of support and experience you require, as you’re going to need them to act as a guiding hand and a sounding board when you’re unsure of yourself. You will have to pay more for this advice, but when you’re turning a profit it will be a small price to pay in the grand scheme of things.

Tip Three: Take Advantage of Demo Accounts

Although a broker and the trading platform they offer might look wonderful on paper, sometimes the reality can be very different. If it’s an option, it will always be worth your time to use a demo account before you commit to anything or anyone.

Not only will this give you an opportunity to get to grasps with your platform before you raise the stakes, but it will also make you aware of any problems.

It can even help you to highlight flaws in your strategy that could lead to losses further down the line. Practice makes perfect, so it will always pay to get in as much as you can.

Tip Four: Implement Money Management Techniques

So much emphasis is placed on making a profit that most traders forget that it’s equally important to protect themselves against losses. Aside from the strategies mentioned above, there are also practical checks that can hep you to deal with the problem more directly.

Protective stop losses are one such tool, and although they won’t prevent a loss completely, they will ensure that they remain reasonable. It’s also handy to set a maximum daily loss amount, beyond which all positions are closed until the next trading session.

When it comes to dealing with losses, it’s not about stopping them entirely, but rather ensuring that they don’t become ruinous, and that when they do occur you react in an appropriate way. One of the best ways to achieve this is to adopt the right mindset.

Tip Five: Treat Trading as a Business

Treat your trading like a business, always remembering that in the grand scheme of things, individual wins and losses don’t matter; the important thing is how your portfolio performs overall.

“Tip Five: Treat Trading as a Business”

Follow our top tips today to safeguard your capital, and ensure that your trading portfolio has a long and profitable future.

 

Tags: Foreign exchange market, Forex Markets

Category: Forex