We have all heard the success stories of the forex market, but it is also a fact that there are countless forex traders who are unable to last for long in the market. As a matter of fact, some statistics indicate that 80% of the forex traders end up quitting because they lose their entire capital. While entering the market is extremely easy, thanks to the internet and technological advancement, but surviving is easier said than done. If you want to trade foreign currencies, but don’t want to fail at it, then you need to understand why others fail.
Knowing why forex traders lose money can help you in ensuring that you don’t go down the same path. So, what are the major reasons for monetary losses in the forex market? Let’s take a look at them:
- Trying to beat the market
It is important to understand that the forex market is not something you beat, but something you have to understand and join when you see a trend. Similarly, you should bear in mind that the market can kick you out if you are trying to make too much from it, but with every little capital. When traders enter the forex market with the mindset of ‘beating the market’, they tend to be a lot more aggressive and even try to go against the trends. This is nothing but a recipe for disaster.
- Failure to manage risk
The key to survive as a forex trader is proper risk management. You can be a very good and skilled trader and will still wipe out your entire capital because of poor risk management. Therefore, it is important to remember that your number one priority is not to make a profit, but to protect your capital. If your capital is completely depleted, then your ability of making a profit will be lost.
Good risk management is the key to counteract this risk and this involves using tools like stop loss orders and using reasonable lot sizes or not trading if it doesn’t make sense. Every broker offers their traders the option to use risk management tools. You can check DMX Markets review to see what tools they have available for helping you manage risks.
- Giving into greed
There are some traders who believe they have to squeeze every last pip from a move in the market. You need to remember that there is money to be made in the forex market on a daily basis. If you try to grab every last pip before a turn in the currency pair, it means you will end up holding a position for too long. In such a situation, you could end up losing an otherwise profitable trade, something you definitely don’t want. There is an obvious solution to ensure it doesn’t happen; don’t be too greedy. Even a reasonable profit is acceptable on a trade and since currencies move every day, you can easily find the next good opportunity.
- Trading indecisively
There are times where you will experience trading remorse. This usually occurs when you open a trade and it is not immediately profitable, which makes you think that you chose the wrong direction. You decide to close your trade and as soon as you do that, it moves in the direction you thought it would. This can be extremely disappointing for traders and the best way to avoid it is to choose a direction and then stick to it. If you continue switching back and forth, it will only cause you to lose little bits of your account until all your capital is depleted.
- Not choosing the right broker
There are a horde of forex trading brokers on the internet, ready to offer you their services, but they are not all 100% reliable. Fake brokers do exist, but even if you have opted for a legitimate one, it doesn’t mean they are a good choice. Some brokers are unable to offer the right combination of features and services that traders need. The key is to do your due diligence like read DMX Markets review or other brokers’ reviews to determine whether they will be the best fit for you or not.
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