While previously only accessible by major banking institutions and wealthy individuals, the foreign exchange markets have rapidly grown in popularity. Now they are considered to offer a mainstream form of investment.
Barriers to entry have fallen. Now even those with a small investment amounts can leverage a sizable position in the market and have the chance of making money from Forex.
Advancements in technology have also helped make accessibility even easier. You can now trade on these markets around the clock from the comfort of your own computer. Readily accessible software programs are now on hand to analyse the markets every move.
However all is not as it seems. This market offers great potential for making money. This is why so many traders are keen to take part. However so many people struggle to register worthwhile gains.
The reality however is that most people who invest their time in the quest for profits trading on these markets actually end up losing money. This is very different from the earning high returns that many system and strategy vendors would have you believe are easily within grasp.
So why is it so difficult to make money from Forex, in particular consistent profits? What follows are some important points that you should know to help you overcome the potential for loss? Below are listed some of the key things you need to be aware of. They won’t guarantee that you make high profits from your trading, but they will help to ensure that you avoid any catastrophic loss.
Reset Your Expectations
Many first time traders to Forex make the mistake of wanting to ‘run before they can walk.’ They come to currency trading wanting a share of the big profits. However what they don’t realize that high returns are not something that you just stumble into.
To make good money from Forex you need to have more than just an awareness of the operation of the market. You need to know what you are doing. This means understanding exactly when to trade and when not to, statement that sounds obvious but in practice is very difficult to master.
Anyone who has tried trading will know that it takes time to develop the skills needed so that you can spot opportunities to profit from.
To become successful and maintain a profitable Forex system you will need to learn about the following three areas – Fundamental analysis, technical analysis and price action. It is only once you have a basic understanding of each of these key facets that you should think about trading for real.
In the quest for profits many traders use inappropriate proportions of their available capital. This typical of new traders who want to push forward to quickly in their quest for gains. This may work in the short term but can prove devastating in the long run. It is inevitable that you will hit a string of losses at some point. When you do your account needs to be a in position to weather this storm.
There are many theories for managing risk. The best approach however is simple. Never risk more than 2-5% on any position you open.
The opportunity to make big profits on your investments is of course available to any trader. However you need to have realistic expectations. If you only have $100 to trade with then you can’t expect to turn this into a million overnight.
Use A Stop Loss
Limiting risk is the first thing that you should do whenever you trade the currency markets. On each order that you open, always place an appropriate stop loss to protect your position. This will liquidate your order if a sudden change in the market occurs and will help to limit any loss that you may incur.
It always pays to remember that by exiting the market at the early sign of a change in sentiment, you can reduce and limit the size of your loss . If you stay with your position and the market continues to move against you then you will only compound your grief.
Stick With The System
One of the biggest obstacles to achieving success when trading is the trader themselves. Knowing better than the strategy or trading technique you use and constantly adjusting trading parameters can easily see an otherwise profitable approach lose money.
It is vitally important that you observe your own trading rules, for example sticking to a tight stop loss and not letting positions run beyond your targets in either direction. Create your strategy, document it, test it out and then most importantly, stick to it.