Trading Dumb Costs Money

7. December, 2012 Investing No comments
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It’s often said in the business world that “It takes money to make money,” yet the very same thing could be said about the Forex market. Though you wouldn’t know it by talking to most beginners.

Many new traders are enticed into the market by brokers offering deals such as opening an account with as little as a single dollar, or micro and nano-accounts which require little funds. But whilst it is possible to trade with a small account balance, it doesn’t necessarily mean you’re going to make any money.
 

Trading Without Enough Money

A common mistake that new traders make is trading undercapitalized. They enter the market excitedly with expectations of massive wins, deposit just a few hundred dollars into a trading account and then interact with the market the same way as more experienced traders do. But this is a very risky way to begin trading as starting with a limited portfolio is often not sufficient for the style of trading that they’re using.

They risk amounts that are much too high compared to their account balances. It’s akin to entering a casino and throwing down all your money on a single number at the roulette table. Many new traders risk 50%, or more, of their account balance on every trade, whereas industry experts recommend that traders never risk more than 1% of their portfolio at any one time. This heightened exposure to the market means that it only takes one big loss to eliminate most of your trading capital.

This is why it’s no wonder that there’s such a high turnover of new investors in Forex trading today. Trading with a small account balance makes it difficult for you to interact with the market in the way you need to be successful. Experienced Forex traders have enough money in their accounts that they can make large profits on good trades, as well as minimize losses when the market goes against them. The primary focus of new traders must be to live to fight another day.

     

Getting an Education

The primary reason Forex trading can have such high turnover is that people commence trading with little to no formal education in trading. Fact is, many traders skip any kind of formal training and jump right into trading expecting to learn as they go. It makes sense that a person wouldn’t walk into a surgical suite and start performing brain surgery just because you watched a video about it on YouTube, so why would it make sense to basically do the same thing in Forex?

If you want to maximise your chances of becoming a truly successful Forex trader then training is essential. Attending short courses in Forex training is one great way to get started, companies like Online Trading Academy run regular virtual classes that anyone with an internet connection can participate in. Another way to get started is to take the time to informally learn about the market by keeping an eye on sites like www.ASX.com.au where you can learn about currency movement and trends.

Social Trading

A recent option for those looking to up-skill in Forex trading is to participate in what has come to be known as social trading. Participating in a social trading community like FX Copy can make your life as a trader a lot easier. With these types of Forex tools, you can watch, listen and learn from other successful traders in the market, leveraging their experience and knowledge to help you get up to speed faster.

Taking a holistic approach to learning from the market, whether by keeping an eye on industry sites, attending training classes, or watching others in action, will help you learn faster and give you the skills to start trading smarter, sooner. Successful Forex traders take a lifelong approach to learning, so if you want to take Forex trading seriously then you need to do as they do. Trading dumb, is well, just dumb.


 

 
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