Forex trading is never easy, which is why many traders lose their money in this market. Many new traders are rushing into this and trying to make quick profits without preparations. This behavior can easily wipe out their capital. It is always suggested to start with a demo account to get some experience with this most volatile market.
Let’s put all these tricks, signals, and gimmicks aside to discuss something more important in risk management which in most cases, is the reason you’re not blowing your accounts. Focusing on the elements that you can actually control will bring your trading journey even further. Newbie traders often neglect the following three aspects of risk that can sabotage their trading.
Weak trading plan
The main reason for losing money as a beginner can generally due to a weak trading plan which is associated with the inappropriate use of leverage. Leverage is great. It’s why traders like this game. But without proper control, it can cause significant losses. For instance, using 100:1 leverage on a $1,000 account means a mere 1% move against your position can wipe out your entire capital.
Another critical element is setting appropriate stop-loss and take-profit orders. We, as human beings, are emotional. And you can’t be more emotional when holding a position and watching your trades succeed. It is a slippery slope. Traders often refuse to cut losses or take profit when they’re winning. Eventually, the market will show how ruthless it is. Also, don’t be that trader who bets the farm on a single trade. Choosing the proper position sizing that aligns with your risk tolerance is also key to ensuring you don’t expose yourself.
Market Execution and Liquidity Risks
Sometimes your risk might have nothing to do with your trading plan. It can come from the market and liquidity which beginners may not notice.
Imagine you get a stop-loss order set at, for instance, 1.2000 on a EURUSD trade. But due to higher volatility, your order gets executed at 1.1970 – that's slippage. There are also extreme cases like gapping, where the price just jumps and immunes your stop-loss. Carefully select the time you trade and properly place a limit order to minimize such risk.
Besides, the quality of your broker's execution can significantly impact your trading outcomes. Delays in order execution or poor price feeds can lead to missed opportunities and increased losses. Choose a broker with fast execution to minimize such risks.
External Factors
As a beginner, it’s always suggested to keep one eye on the market and what’s happening around the world. Simply focusing on charts and your strategies can’t minimize your risk in a long run. Be aware of external factors like GDP, inflation, central bank policy as well as geopolitical events. All of the information can support your trading and help you prepare for the potential huge moves in the market.
Besides, counterparty risk is easily neglected by many newbies. Watching your broker run into financial trouble with your hard-earned money might be the last thing you want to see. It’s one thing to find a broker, it’s another thing to find a reliable and consistent one to secure your funds along the journey. Counterparty failures can result in the loss of funds or the inability to access trading platforms.
Disclaimer: Forex trading carries a high level of risk and may not be suitable for all investors. It is essential to thoroughly understand the risks involved and seek professional advice before engaging in forex trading.
Let’s put all these tricks, signals, and gimmicks aside to discuss something more important in risk management which in most cases, is the reason you’re not blowing your accounts. Focusing on the elements that you can actually control will bring your trading journey even further. Newbie traders often neglect the following three aspects of risk that can sabotage their trading.
Weak trading plan
The main reason for losing money as a beginner can generally due to a weak trading plan which is associated with the inappropriate use of leverage. Leverage is great. It’s why traders like this game. But without proper control, it can cause significant losses. For instance, using 100:1 leverage on a $1,000 account means a mere 1% move against your position can wipe out your entire capital.
Another critical element is setting appropriate stop-loss and take-profit orders. We, as human beings, are emotional. And you can’t be more emotional when holding a position and watching your trades succeed. It is a slippery slope. Traders often refuse to cut losses or take profit when they’re winning. Eventually, the market will show how ruthless it is. Also, don’t be that trader who bets the farm on a single trade. Choosing the proper position sizing that aligns with your risk tolerance is also key to ensuring you don’t expose yourself.
Market Execution and Liquidity Risks
Sometimes your risk might have nothing to do with your trading plan. It can come from the market and liquidity which beginners may not notice.
Imagine you get a stop-loss order set at, for instance, 1.2000 on a EURUSD trade. But due to higher volatility, your order gets executed at 1.1970 – that's slippage. There are also extreme cases like gapping, where the price just jumps and immunes your stop-loss. Carefully select the time you trade and properly place a limit order to minimize such risk.
Besides, the quality of your broker's execution can significantly impact your trading outcomes. Delays in order execution or poor price feeds can lead to missed opportunities and increased losses. Choose a broker with fast execution to minimize such risks.
External Factors
As a beginner, it’s always suggested to keep one eye on the market and what’s happening around the world. Simply focusing on charts and your strategies can’t minimize your risk in a long run. Be aware of external factors like GDP, inflation, central bank policy as well as geopolitical events. All of the information can support your trading and help you prepare for the potential huge moves in the market.
Besides, counterparty risk is easily neglected by many newbies. Watching your broker run into financial trouble with your hard-earned money might be the last thing you want to see. It’s one thing to find a broker, it’s another thing to find a reliable and consistent one to secure your funds along the journey. Counterparty failures can result in the loss of funds or the inability to access trading platforms.
Disclaimer: Forex trading carries a high level of risk and may not be suitable for all investors. It is essential to thoroughly understand the risks involved and seek professional advice before engaging in forex trading.
