Forex Markets – how to avoid losing money
The Forex market is extremely popular amongst traders, for a wide range of reasons. From the low entry barriers, high liquidity and the use of leverage, prospective traders are presented with the opportunity to make lucrative investments based on currency. Forex trading (FX) is essentially the process of changing one currency into another, in an attempt to make a profit on the exchange rate. The two currencies that are being compared are then known as a currency pairing.
Despite the market’s popularity, there’s still a level of risk involved when you trade currency pairings. Before you get involved with any type of trading, you need to research the best practices and strategies in order to minimise your losses and gain a general understanding of how your chosen market acts.
Investing in the forex market is a great option for people with high incomes who need more money to live on. Using equity release can be helpful because it releases some of your home’s value, which you then invest into currency markets at exchange rates that fluctuate daily across national borders and are influenced by world events.
To find out more about how to avoid making a loss on your FX trades, we have three easy tips.
- Practice with Demo Accounts
To give you a little more security and certainty when you begin trading on the FX market, it’s always a good idea to seek out a trading platform that offers a demo account option. With this, you can experience a true-to-life simulation of the chosen market, but with virtual capital and trade deals, that won’t affect your real funds.
When you use a demo account, you can accurately test your strategies and have a practical learning experience, without losing any money along the way, no matter the outcome. This can be extremely beneficial for first-time traders as you can familiarise yourself with the trading platform and the markets you’re interested in, with less risk than when you make real trades. Once you feel like you’ve gained enough knowledge and perfected your strategy, you can lay down some of your real-life capital and get trading.
- Focus on Trade Pairings
Another great way to avoid losing money and gain more valuable experience of the FX market is to only focus on one or two currency pairings at a time and to keep an eye on forex trading signals. If you spread your investments too thin, then you’ll be at a bigger risk of making a loss, as it can be difficult to keep track of all the currencies involved. You may find yourself focussing more on the performance of just one specific currency, however the overall success or failure of the trade requires you to take into consideration both assets in the pairing.
It can also be beneficial to understand the historical relationship between certain pairings that you wish to trade with, as this can give you an insight into how they may perform in your own trade.
- Use Stop Losses
Stop losses can be imposed on your FX trades by establishing a predetermined selling price for open trades, limiting any potential financial losses. This is a top risk management tool that traders can use to balance a number of open trades in real-time, by automatically closing trading positions when they have already incurred a previously specified level of loss. If you’re trading on a larger scale, this can really help to safeguard your capital over time, and take slight pressure off you in terms of keeping up with every change in a pairing’s value.
On the flip side, be mindful of using too tight of stop losses on certain trading sites, as these can lead to closing a promising position before it has had time to develop. Just because an FX pairing has dropped in value at one point, it doesn’t mean that it won’t go on to increase in value in the future – you might be able to see promise in the trade that the automatic stop loss can’t identify. Unlike a human opinion, tighter stop losses don’t allow for the natural volatility of the FX trading market.