Trillions of dollars change hand within the Forex markets every day and unsurprisingly, this is why the sector is considered to be the most liquid in existence.
Many new investors are attracted to such positions, as they often equate to high returns within a relatively short period of time. However, it is an undeniable fact that the majority of would-be traders will eventually lose money over time; souring them to the entire concept of currencies.
What are three principles which must be taken into account if you have been hoping to encounter the difference between a fruitful venture and a failed dream?
The Fallacy of Thinking in Terms of Percentage Returns
Let us think about this concept for a moment.
Imagine that you recently spoke to an investor who claimed that he enjoyed returns of 100 percent on a certain venture. What does this truly entail?
Perhaps he only garnered £200 pounds after a one-off deposit of £100 pounds.
In truth, expert Forex traders do not view their status from a percentage perspective. They are instead more concerned with the relationship between risk and reward. In other words, how much did they initially risk and were the gains worth the effort? This is a much more accurate means to gauge the efficacy of a specific trading strategy.
The Incorrect Use of Margins
Many individuals are attracted to the Forex marketplace after hearing about margin trades. After all, it is easy to be tempted by the ability to put down a small fraction of the value of a holding and accrue massive returns.
The unfortunate fact is that this type of greed can often supersede basic logic.
Higher rewards equate to massive risks. The currency markets should never be approached in the same way as a gambler entering a casino. All moves must be carefully calculated. It is for this reason that margin trades should only be undertaken by those with a good amount of experience. Even then, they should represent only a small portion of one’s entire strategy.
Learning How to Swim Without a Life Preserver
Many novice investors jump into the Forex markets with a head-over-heels approach; imagining that they will be able to learn the ropes along the way.
Not only is this a very nearsighted tactic, but it almost always ends in ignominious failure.
Learning through mistakes is certainly no way to begin down the road to success. It’s no surprise that it takes unbelievable amounts of commitment and discipline to become successful at Forex trading, but that doesn’t mean it’s impossible.
The predominant variable ultimately depends upon your mindset and your willingness to take things at a slower pace in the beginning. It should also be mentioned that opening up a demonstration account is an excellent method, as you can develop bespoke strategies while not risking any physical capital.
Please keep these three trading maxims in mind when entering into the exciting world of Forex trading.
Practice makes perfect and knowing some of the most prevalent mistakes to avoid is the first step towards success.