In finance, forex trading is a lucrative industry where many lose and only a few win. In the UK alone, forex trading resulted in the loss of over 25 billion pounds. Many people think that foreign exchange markets are simple to use and require no prior knowledge about finance to begin investing their money, but they don’t realise this isn’t true. Numerous UK traders have been known to lose money because they didn’t understand all of the risks involved with forex trading.
Forex trading refers to buying and selling currencies from different countries around the globe. One opens an account with a broker who helps them buy at low rates and sell high throughout the day. People do this because they believe the value of a specific currency will increase over time.
Why Do Traders Lose Money in the Forex Market?
Trading Without a Clear Goal
Many new traders go into the forex market thinking it’s an easy way to make large amounts of money and not understanding that you can lose and gain. New traders believe that they will open an account and then carry on trading until their balance is filled with profits. However, they end up making losses because they didn’t have any plans or goals in the first instance; therefore, there was no structure behind what they were doing.
Not Learning From Mistakes
There’s no doubt about the fact that every single person on this planet has regrets and makes mistakes, and as human beings, we all know precisely how debilitating these experiences can be. Unfortunately for those who trade currencies online, some don’t realise their mistakes until it is too late, especially if they’ve been allowed to trade without supervision. Suppose you’re not learning from your mistakes. In that case, they will be repeated frequently, which means that you need to take responsibility for yourself as a trader and start asking some serious questions about your current situation.
Trading Daily Charts Over the Weekly One
Some traders mistake entering markets with a short term perspective. They think they can only make money if their trades last a few days or even hours, putting them at a considerable disadvantage because a different trend is created on the weekly chart than what we see on lower time frames. By understanding this, you can prevent many losses in forex, so it would benefit all traders to look at the bigger picture when they’re in a losing position to ‘re-evaluate’ where the market is.
Not Following Their Trading Plan
When trading for a living, following your plan and knowing exactly where you stand is crucial to making profits regularly. You can see here how your plan will work. Without this, we will never know whether we are in the correct type of market or not and what position we should be holding to achieve our targets. Any pro forex trader will tell you that they have already developed their strategy before getting involved with any markets, so there’s no excuse for not sticking to it once you’ve opened your account.
Risking Too Much Capital
A trader might have a minimum stop loss placed with their chosen broker in the stock market to stop them from losing too much money. In forex, this isn’t possible as we also need to factor in our pips and spreads when looking at the risk/reward ratio of a trade, so risking on any one position can be extremely dangerous if it doesn’t look good at first glance. Traders that don’t have enough capital have no choice but to trade higher amounts on each position, making it even easier for losses to build up with increased risk involved.
Not Looking After Their Emotions
Having an account that has increased dramatically after opening two or three trades may cause us to become overconfident. When this happens, it’s easy to start thinking that we’re invincible. However, it is never the case in forex trading because losses are always just around the corner. By taking emotion out of our decisions, we can limit any unnecessary psychology, saving us a lot of money in the long term.