Forex trading as a money making venture for the individual trader has ballooned in recent years, with daily turnovers for retail traders reaching over $250 billion dollars per day. That may seem like a staggering figure, but it pales in comparison to the total daily turnover for forex trading. At current estimates which retail trading makes up just 5% of the $5.3 trillion dollars which changes hands each day in the global currency markets. For a quick point of comparison, the GDP of Japan is just $4.6 trillion dollars.
Hearing those kinds of numbers, it is then no big surprise that many retail traders are drawn to the possibility of life changing profits and financial freedom. Yet often these new traders dive in the deep end without proper preparation, and fail to take all the necessary risk management precautions before putting their money on the line. The end result being more often than not they lose their whole account and their forex career has finished before it even had a chance to begin. The truly successful traders are those who started out carefully and did not risk everything at the start, but allowed themselves to build up the skill a discipline to turn a profit each and every day, then build on those profits.
This article has been created simply to point out some of the more obvious and easily avoidable problems that a new retail trader will run into, in the hope of encouraging these new traders to tread carefully at the start, and give themselves time to learn, then eventually to earn.
Build Your Skills before Putting Them to the Test
There is a huge market available to service retail traders these days, and one thing they provide in huge abundance is the ability to paper trade before putting real money down. Demo accounts will allow you to trade under real market circumstances, just without the possibility of huge financial losses. Get a forex demo account and paper trade for a while, once you can maintain consistent profitability in your demo account, it will be time to test your skills for real with a micro forex account.
Gut Trading is Just Gambling
Trading with emotions will kill your account, it really is as simple as that. You might get a few big wins just on luck alone, but over time the only thing that can reliably guarantee turning a profit is skill and discipline. Whichever method of trading you decide to go with, be it price action trading or if you choose to learn signals and indicators, you need to master it and trade to your rules. Gut trading is guessing, guessing is gambling, and when you gamble, the house always wins in the end.
Leverage – The Double Edged Sword
Using leverage is very very tempting for new traders, and even intermediate traders who wish to maximise the profits on their newfound skills. The problem with leverage though is that although it is a quick way to maximise the gains on a good trade, it has the exact same effect in the opposite direction on a bad trade. This is why leverage is referred to as the double edged sword. A highly leveraged trade gone wrong can kill an account if the price moves just a few points in the wrong direction, and then you’re back at square one, or even worse depending on your account conditions.
There is no doubt that forex trading can be a very profitable venture for the right trader, but without preparation you’re a sitting duck. Take the time, learn from those who came before you and build your skills before you put everything on the line. That is the key to a profitable trading career, preparation and disciple, and if you take that to heart you have a huge advantage over all the other new retail traders who are testing the waters in the forex markets.