Most Common Mistakes made by Forex Traders in Financial Market
The forex market has grown exponentially of late, as technological advancement has helped to empower part-time traders and seen daily trading volumes rise to $6.6 trillion each day.
However, the forex market remains innately volatile, with significant short-term price fluctuations making traders vulnerable to human error, rash judgments, and the type of mistakes that can cause you to lose considerably more than your initial deposit.
Being aware of these errors and overcoming them can make you a more efficient and profitable trader, so here are some of the most common (and obvious) mistakes made by forex investors.
- The Absence of a Trading Plan
They say that knowledge is power when you enter the forex market, but even this means little unless you’re able to gain practical experience of trading and exchanging currencies.
Many people underestimate the gap between theoretical knowledge and practice trading experience, however, denying them the opportunity to formulate a viable plan and strategy. This translates into a haphazard investment approach, and one that lacks consistency, direction and sustainable profits.
So, when you sign up to a licensed broker such as Tickmill.com, you should access a demo account to help bridge this gap and test potential trading strategies in a simulated, real-time marketplace.
This way, you can create a structured and deterministic approach to trading, and one that’s both informed and reliable in equal measure.
2. Over Leveraging
One of the most appealing aspects of the forex market is its inflated leverage, which enables you to borrow disproportionate amounts of capital in relation to your deposit. Typically, brokers will offer you leverage of around 50:1 , allowing you to open large positions that can potentially deliver sizable returns.
However, as leverage refers to the use of borrowed capital to open forex positions, it’s also possible to lose more than your initial deposit and magnify the consequences when trades go awry.
With these points in mind, it’s clearly possible to over-leverage in the forex market, with this representing a significant risk in instances where you aggressively pursue vast gains and borrow considerably more than your capital holdings.
So, try to strike the ideal balance between risk and reward by capping the amount of leverage that you’re willing to consider, in line with your strategy and the amount of money that you have to invest.
3. Choose the Right Broker
Interestingly, brokers are also required to play a key role in protecting traders in this respect, by capping leverage available at a maximum of around 100:1.
However, unlicensed and unreputable brokers often attempt to entice traders by offering inflated leverage as high as 1000:1, putting both novices and even experienced investors at risk of incurring huge losses.
So, you’ll need a sense of understanding and discipline when choosing your preferred broker, to ensure that they’re fully licensed by the Financial Conduct Authority (FCA) and follow the best practice when extending leverage to traders.
Otherwise, you’ll run the risk of incurring unsustainable losses and potentially partnering with rogue operators that actively want to steal your funds and personal information.