Currency trading is arguably one of the most lucrative investment strategies in existence.
While financial articles often highlight the success stories, the irony is that the majority of traders will actually lose money from a long-term point of view.
Why is this the case? What mistakes are being made and perhaps most importantly, how can you avoid such pitfalls?
Let us examine some incorrect approaches in order to better understand the most profitable methods.
Overconfidence and Hubris
Pride cometh before a fall.
Pride can be a dangerous attitude to embrace when trying to capitalise upon movements with the Forex marketplace.
Overconfidence leads to a lack of precautionary measures and as a result, investors will leave themselves exposed to mistakes that could have otherwise been easily avoided (1).
The most successful traders appreciate the simple fact that there is always something new to learn. They also understand that previous conditions do not necessarily guarantee that the same trends will be repeated in the future.
Always keep an open mind and above all, remember that the learning curve never ends.
Choosing the Incorrect Brokerage Platform
Would you ever expect to win a race using a car with a substandard engine?
The world of online investing is no different.
Not all platforms are made equally and many are associated with substandard tools.
As a result, you could be setting yourself up for a loss before real-time trading even begins.
Picking the right broker is crucial to your growth and development. Forex trading with CMC Markets is a great option because of the learning resources they provide you with. Real-time chart analyses, access to countless underlying assets, immediate trade executions, and superior levels of customer support are some of the amenities that you can expect to enjoy.
Failing to Read Prevailing Market Conditions
Ignoring the prevailing status of the currency markets is akin to ignoring a weather forecast in the hopes that you will avoid rain.
Some investors become so wrapped up in technical indicators that they neglect to analyse the “big picture”. Some of the main factors which can influence the relationship between currency pairs include (2):
- Inflation rates.
- Government debt.
- International trade relations.
- Interest rates.
Any one of these metrics could cause the value of a certain currency to rise or fall in relation to another. This is why you must make it a point to keep abreast of the latest economic news on a daily basis.
Trading on margin is attractive in terms of the ability to accrue massive profits in relation to the initial investment amount.
Unfortunately, some traders leave themselves exposed to massive losses. These losses will often supersede the trade itself; leading to a lack of liquidity. Although there is no doubt that margin trades are lucrative vehicles to consider, they should only be executed after you are well aware of the risks.
These mistakes should be avoided at all costs if you hope to make money in the Forex markets. Knowing of their existence is the first step towards success.