The Forex Market is the largest and most liquid financial market in the world where it also has relatively low barriers for entry. As one of the top 10 ways young Australians can make money, learning how to develop financial literacy through trading Forex can be a worthwhile investment in the long run.
However, before you start your career as a Forex trader, you must be willing to develop a clean financial record to open new financial opportunities; this often includes paying off loans and finding ways to improve bad credit. Always remember that your investment will be money that you can’t use for the next months or even years, so don’t start if you don’t have any money set aside for this purpose.
Once you have a clean slate and begin your career as a trading, here are some mistakes you need to avoid making as you grow into a professional trader:
1. Choosing the wrong broker
A Forex broker is a firm that provides traders access to a platform that allows them to buy and sell foreign currencies. They also carry out orders as provided by the trader at a specific date and time. In the market, brokers are classified to two categories:
- Regulate brokers that have been licensed by institutions like Australian Securities and Investment Commission (ASIC). These brokers often have a higher amount needed for investments and they have various charges depending on the company’s terms.
- Non-regulated brokers that have not been licensed by any of financial institution. These brokers often allow you to deposit and withdraw your investment as you please.
Investors who are looking to get a better hold on your finances may consider hiring a regulated broker since they are less likely to operate on conditions outside of their role. For added security, you should make sure to check that the broker is licensed in your country since licensed brokers from overseas since foreign regulations may not apply.
2. Not creating a thorough strategy
With a market as huge as Forex, it’s not surprising that several experts have developed countless strategies and trading styles that suit different traders. Another crucial mistake you can make in your career is not planning their every move or creating a strategy that would prevent you from losing more capital. This results to reckless trading which can make them incur more losses than anticipated.
In order to succeed in the market, you must be able to adapt to different marketing conditions while also learning to keep a cool head. Your strategies will involve:
- creating a budget
- analyzing different market conditions
- listing down the steps you need to take
- practicing strategy on a demo account before trading live
- learning updated trading methods
- handling losses
3. Risking more than you can afford to lose
This problem often comes with the trader not deciding on a budget for the day and sticking with it. Traders who do not keep track of their daily losses, their win-rate ratio, and their risk-reward ratios are more likely going to spend and trade recklessly which result to more losses.
To prevent this from happening, traders should map out a budget and stick with it. In the case for day traders, experts recommend risking 1% or less of their capital on every single trade. While this strategy isn’t exactly bullet-proof, a trader can at least have some control with their budget which prevents them from going overboard.
4. Trading without a stop-loss
A stop-loss order is carried out to put a limit on a loss on their security position to minimize certain risks. For instance, if the price of a currency pair moves against you at a specific percent or amount, you can submit a stop-loss order to your broker to help you get out of a trade without incurring more losses.
Additionally, a stop-loss order can also be used to help secure more profit which locks in your earnings prior to your exit. To do this, traders must make an order in advance which includes setting conditions on when is the right time to exit. Once these conditions are met, the order is carried out automatically where results are immediate.
Aside from not making the mistakes listed above, another crucial mistake that most beginners often make is the lack of commitment when it comes to educating themselves. Many, who have incurred successful trades may think they do not need to continue learning which can limit their potential as better investors. In the end, no matter how experienced you are in the trade, the best way to ensure success would be to continuously educate yourself for the better.