As the largest financial market globally, the forex market attracts traders from diverse backgrounds and industries. However, the forex market offers significant amounts of leverage, 24 hours trading opportunities and lower costs of trading, which can cause many traders to lose their money, especially when they are not too familiar with different trading strategies. This is precisely why traders must identify specific strategies for profitable trading or in other words, to avoid losses. In this article, we have discussed top 8 ways in which traders can avoid forex losses.
1. Prepare yourself Before Entering the Market:
Although, your maximum learning will come through live market analysis and trading experience, it is important that traders collate some background information around the economic as well as the geopolitical factors and conditions that impact the performance of different currencies. Also, as traders you need to be fully prepared to adapt to the changing forex market regulations, conditions as well as global events. As part of the research procedure, you must also prepare a trading strategy or plan to determine the amount of money you need to invest and the risks that you are capable of taking.
2. Search for a Reputed Broker:
As traders you should be concerned about the security of your deposits. This means that you must look for a reputed and reliable broker who offers the right amount of safety for your funds. Typically, a forex trader must create an account with a broker who holds the membership of the National Futures Association (NFA) as well as the CFTC (Commodity Futures Trading Commission). Apart from this, traders must also understand that every country has their own regulatory authority or body and their preferred broker must be registered with the same. In addition to this, traders must also find out about their preferred broker’s offerings with regard to the type of accounts, leverage, spreads and commissions, initial deposit amount and withdrawal procedures.
3. Set up a Demo Account:
Setting up a demo account is one of the easiest ways of avoiding forex losses. Also known as a simulated or practice account, the demo account allows traders to practice trading by placing hypothetical trade orders without actually funding their accounts. A demo account helps traders in gaining knowledge around order placing techniques and opening as well as exiting from their trade positions easily.
4. Safeguard Your Account:
No matter what you do, learn to manage your money even before you indulge in forex trading. According to professional traders, entering a trade position at any point of time is much easier. However, the real problem comes when one has to exit from their position. This is exactly where traders lose their money. This also implies that you must be willing to fully accept any losses and keep on moving in order to earn profits in future. Typically, traders can use stop loss order or limit orders in order to avoid losses. On the other hand, using techniques such as trailing stops or stop order can aid traders in protecting their profits.
5. Trade with a Small Amount:
Once you have a strategy in place and you are about to go live make sure you initiate trading with a small amount. Traders must understand that have little to no knowledge around live forex trading and factors such as slippage and emotions can cause them to place incorrect trade orders that may further result in heavy losses.
6. Use Leverage Smartly:
Another easy way in which traders can avoid forex losses is by using leverage intelligently. Forex trading is attractive for many traders as it provides them with plenty of opportunities to maximize their gains with small amounts of initial investment. Thus, when a trader uses leverage generously, he/she is able to open large positions and on the other hand a smaller leverage results in limited risks or losses.
7. Records are important too:
When it comes to forex trading, traders must keep a trade journal in order to record their transactions. A trading journal provides information around previous losses or profits, trade positions, trading tools and other important trading details that can be later used by a trader to improve his/her trading strategy and minimize losses.
8. Consider Forex Trading as Your Business:
Last but not the least, take forex trading as your business. In the end you must understand that a couple of losses and profits won’t matter in the short term, it’s essentially the manner in which your trading business performs with the passage of time that will really matter.
To sum up, traders must be fully prepared and possess the knowledge as well as skills for minimizing losses while trading forex. This can be easily achieved by gaining knowledge around forex trading signals, methods and techniques.