According to CommexFX, the FX market is the largest and most active in the world. There is no market—no stock market, no futures market—on which trading happens more regularly. The FX market is also known for being the most accessible market in the world—and yet, the success rate for new and novice investors is disarmingly low.
Why is this? As with any other form of investment, FX trading brings with it both risk and reward. Often, for beginners, mitigating risk and moving forward strategically can prove challenging. In the paragraphs that follow, CommexFX shares some of the biggest errors for new currency traders to avoid.
There are many reasons why new FX traders fail—including each of the following:
- New traders lack experience. Forex trading is like anything new, insofar as it has a learning curve. It is the same as when one starts learning to play the piano, or to knit; the difference is that, with those hobbies, one is not risking copious amounts of money! When it comes to any kind of investment, and certainly something as potentially complicated as forex trading, it is recommended that new investors learn in a way other than sheer trial and error. Do some on-paper trades, first; most online forex brokers will allow for practice and demo trades.
- New traders have ridiculous expectations. According to CommexFX, there persist some notions that FX trading is essentially a way to “get rich quick,” which, of course, is untrue. There are many investors who find wild success here, and some do it right off the get-go, but for most, it takes some time and discipline to start to rake in the profits. Expecting instant gratification can lead to some sloppy errors.
- New traders do not always have a good trading plan. This one goes hand in hand with unreasonable expectations; because many traders think they can make bank overnight, they enter into their trading activity without a sound plan in mind. As with any matter of investment, CommexFX trading requires a solid long-term plan. It also requires a specific aim for every single trade that is made. Entering into this business haphazardly or carelessly is a recipe for disaster.
- New traders do not have enough discipline. A trading plan is only valuable when it is adhered to, but this is not always the way novice traders approach it. Remember that this is the most active market in the world, and big changes can happen at any time. As the market fluctuates, there is often a tendency to deviate from one’s trading plan. CommexFX believes that getting swept along by emotions is not a good way to approach FX trading, however.
- Excessive leverage is also a problem. According to CommexFX, understanding leverage is one of the primary difficulties that new traders face. For experienced traders, trade leverage can be a powerful tool for maximizing returns. It can also cause a downfall, however, and should never be used without properly understanding it.
- Holding too many open trades can end in disaster. There is a common expression among fighter pilots: “Helmet fire,” which essentially means there is so much going on that it is impossible to react. The same thing can happen in the world of trading. When too many open positions are held, it is simply impossible to respond to market shifts and fluctuations as needed.
- Holding losing positions too long is detrimental. At the same time, CommexFX notes that holding losing positions for too long can be any trader’s downfall. Experienced traders know that, sometimes, there is just no way a losing position is going to reverse. Taking a “hold and hope” approach is the antithesis of truly focused and disciplined investing, and it should be avoided.
- Inexperienced traders sometimes fail because they ignore rate spread fluctuations and the impact of spreads on profitability. The concept of the spread is one of the most critical for investors to understand. Spread differentials can vary wildly throughout the course of a trading day, and investors need to be ready for this, and to understand what it means.
- A final problem to avoid is getting greedy. Sometimes, new investors focus on the “big win,” but according to CommexFX what they need to focus on is effective cash management. Obsessing over the big win is a great way to start losing money fast.
FX Trading Takes Skill and Discipline
Forex trading attracts investors from all over the world—and for good reason. It is a potentially lucrative way to generate some solid returns, and in many regards it is more accessible than other forms of investment. Nevertheless, CommexFX recommends that new traders approach this endeavor with the appropriate levels of caution and discernment.