One of the most common mistakes Forex traders make is not having a trading strategy. Because of the many enticing features of Forex, most traders enter trades that they know little or nothing about.
The first step on the road to profitable Forex trading is to create a trading strategy and trading plan. By and large, this is not complicated and does not require much effort or expense. Most of the required information can be looked up for free on the internet, and the bottom line is that it can help the trader gain the knowledge needed to protect himself from possible losses. Proper management of funds is probably the most important aspect of trading.
Traders must accept that there is no 100% profit guarantee and even experienced traders can occasionally speculate wrongly and experience significant losses. The key here is to recognize at the right time that the strategy being used is not working before the damage becomes too great. To do this, traders need to determine upfront how much equity they want to fund their account with. The next thing they need to determine is how much risk they are willing to take on each trade. Most experienced traders usually risk 1-5% of their equity on each trade. For inexperienced and untrained Forex traders this may seem low at first, but in the long run it avoids big losses and over time creates the discipline needed to gain the necessary experience.
Short and Long Options
Short option, in which the trader speculates on a depreciation in the exchange rate. Basically, this means that when selling a currency, the trader speculates that the rate of it will fall. Long option, and this in turn includes speculation that the price of the currency will appreciate. This means that in this option the trader hopes that the currency will increase in value, thus bringing in the desired profits.
Forex trading is risky
The Forex market is huge and getting into trading without the necessary expertise about the market and its rules can be costly for many traders.
The dominant Forex giants such as large banks and hedge funds have some power to influence market movements and exchange rates. For inexperienced traders, investing with equity in such a market is very risky and unsafe.
Forex brokers offer very large leverage, also known as leverage, for retail investors. Traders can trade with a 300-1 leverage, which means that for every euro that the trader places in the trade, he can trade with 300 €. For example, a Forex trader who has an account deposit of €1,000 can trade with a sum of up to €300,000. For many potential traders this is a great opportunity, but at the same time it is a huge risk to trade with leverage of this magnitude. Experienced traders will rarely trade with such a large leverage effect, as the risk of losses is equally large.