Foreign exchange trading was once just something that people
had to do when traveling to other countries. They would exchange some of their
home countries currency for another and endure the current currency exchange
rate.
These days, when you hear someone refer to foreign exchange
trading, they are usually referring to a type of investment trading that has
now become common. Traders can now speculate on the fluctuating values of
currencies between two countries. It's done for sport and profit.
This seems like something that most people would find easy,
except, in this particular industry, there is a high rate of failure among new
traders. Even traders that are aware of that tend to start out with the
attitude of "It happened to them, but it won't happen to me". In the
end, 96 percent of these traders walk away empty handed, not quite sure what
happened to them, or maybe even feeling a bit scammed.
Forex trading is not a scam, it's just an industry that is
primarily set up for insiders that understand it. The goal for new traders
should be to survive long enough to understand the inner working of foreign
exchange trading and become one of those insiders.
The number one thing that hangs most traders out to dry is
the ability to use forex trading leverage. Using leverage allows traders to
trade on the market with more money than what they actually have in their
account. For example, if you were trading 2:1, you could use a $1000 deposit,
to control $2000 of currency on the market. Many forexbrokers offer as much as
50:1 leverage. New traders tend to jump in and start trading with that 50:1
leverage immediately without being prepared for the consequences.
Trading with leverage sounds like a really good time, and
it's true that it can increase how easily you can make money, but the thing
that is less talked about is it also increases your risk for losses. If a
trader with $1000 in their account is trading with 50:1 and trading $50,000 on
the market, each pip is worth around $5. If the average daily move is 70 to 100
pips, in a day your average loss could be around $350. If you made a really bad
trade, you could lose your entire account in 3 days, and of course that is
assuming that conditions are normal.
Most new traders being optimistic might say "but I
could also double my account in just a matter of days". While that is
indeed true, watching your account fluctuate that seriously is very difficult
to do. Many people start out assuming that they can handle it, but when it
comes down to it, they don't, and forex trading mistakes are made.
Assuming that you can manage not to fall for the leverage
trap, you'll need to have a handle on your emotions. The biggest thing that
you'll tackle is your personal emotions when trading forex. The availability of
leverage will tempt you to use it, and if it works against you, your emotions
will have your vision upside down, and you will probably lose money. The best
way to avoid all of this is to have a trading plan that you can stick to. Not
only should you have a trading plan, but you should keep a forex trading
journal to keep track of your progress.
You might feel when looking around online, that other people
can trade forex and you can't. It's not true, it's just your self perception
that makes it seem that way. A lot of people that are trading foreign exchange
are struggling, but their pride keeps them from admitting their problems and
you'll find them posting in online forums or on facebook about how wonderful
they are doing, when they are struggling just like you.
Winning at trading forex online is an achievable goal if you
get educated and keep your head together while you're learning. Practice on a
forex trading demo first, and start small when you start using real money.
Always allow yourself to be wrong and learn how to move on from it when it
happens. People fail at forex trading everyday for lack of the ability to be
honest with themselves. If you learn to do that, you've solved half of the
equation for success in forex trading.
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