Top Reasons of Unsuccessful Forex Traders
The foreign exchange market is the place where most of the trades take place. Many traders are trading over years yet only a few become successful forex traders/ investors. The forex market is not a piece of cake but yet it is not an impossible task to trade successfully and earn more. Whether the person is a pro or a newbie to become a successful trader one should have qualities like patience, experience, knowledge, and decision-making skills. Becoming a successful forex trader/investor is not a cakewalk. As a new forex trader, one should do more research and should have a better understanding. No one can’t become an expert overnight. Experience over the years is the major difference between the experienced and the new trader. A new forex trader should remember that the initial loss or failure is not permanent. Analyzing the reasons for the failure, working on it to overcome it will make anyone a successful forex trader. Listed below are a few of the mistakes traders commonly commit which may lead to a loss. Knowing the common mistakes will help one to avoid those and help them to become successful.
Common Mistakes committed:
• Non-maintenance of discipline: When traders let emotions to take control of their trading decisions, then there begins the trouble. It is necessary to handle smaller losses first to finally achieve a big win. So once you begin to trade it is important to make small trades first and never put all the money in the beginning when you are not experienced. Trying to beat the market or giving in to fear or greed can lead to cutting winners short and letting losing trades run out of control.
• Unplanned trading: Making a trading plan first before trading is the main criteria. This is the first point to become a successful trader. ‘Failing to plan is planning to fail”. Only a successful trader does planning that holds all rules of risk management and an idea of return.
• Failing to adapt to the market: Before the market opens for the day, you should create a specific plan for all your trades. Constantly analyzing the trade and planning the moves and countermoves for the changing market situation can reduce the risk of large unexpected losses. As the market situation changes rapidly, it can bring loads of opportunities as well as risks. So the one who quickly adapts to the changing market is a successful trader.
• Trial and error method: Indeed the most expensive way to learn forex is the trial and error method. Learning strategies from your mistakes is not the right way to trade in any market. Instead, access all the trading strategies from successful and experienced traders.
• Poor risk management: Risk management helps to cut down losses. It will ensure the trader does not lose all the money by the strategic planning technique.
• Fear: A trader consciously or unconsciously has various kinds of fear while trading. Common fear includes fear of losing everything, failure, and so on. Fear acts both as an advantage and a disadvantage. Yes!! fear can make you make the right decisions sometimes. Fear will make one act quickly to avoid losses when something goes wrong.
• Overconfidence: Overconfidence usually occurs when a winning trade was made. That is the crucial time the trader should be more careful. The win is a short term success and the feel is the heat of excitement. To be successful in the long run the trader should maintain discipline and should not be overconfident about everything. The confidence one posses may make one think that they will be perfect at every move but that is the place where the problem starts.
• Control: Control is the most important habit that every trader should possess. Even the greatest strategy and top-most tools to be successful in trading may not work when the trader is not in the right mindset.
Leverage in forex is the ratio of the trader’s funds to the size or the price of the broker’s credit. In simple words, leverage is a borrowed capital while trading in forex just to increase the returns in a deal. The leverage in forex usually is much greater than the invested capital by many several times. The size of leverage is not fixed at all; it all depends on trading conditions provided by a certain forex broker or bank.
Margin is one of the most important concepts to be understood while trading. A forex margin is a faith that one puts in a deposit that is needed to maintain open positions. It is not a fee or a transaction fee levied on the trader, instead, a portion of your account is set aside and assigned as a margin deposit. Margin is usually written as a unit of the percentage of the entire amount of the position chosen by you.
Margin calls are calls for additional capital or securities to bring in a margin in the account until the minimum maintenance margin is reached. It usually denotes that one or more of the securities held in the margin account has decreased in value below a certain point. For this, the investor can either sell some of the assets held in the account or more money can be deposited in the account.
How Leverage affects Transaction Cost
Leverage call for transaction cost. The higher the leverage the higher transaction costs. Leverage not only amplifies the losses but also amplifies the transaction costs as a percentage of your capital. If your trade balance shrinks your leverage increases. As leverage increases, faster the transaction cost will use up the remaining money in the loss trading account.
Be careful while trading on margin
Margin enables the trader to enter into larger positions than your account balance. Buying and selling on margin do not provide leverage, it can be used just as a form of leverage. Trading on margin gives the trader a chance to increase the buying and selling power.