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How to Avoid Losing Money in Forex Trading

Here are some tips that can help you lessen or avoid losing money in forex trading:

  1. Knowledge is your friend

It doesn’t mean that because you can start easily in forex trading you no longer have to do your research. If you want to attain success in trading you must learn as much as you can about it.

You should try to learn as much as you can about the forex markets. These things include geopolitical and economic factors that can affect your preferred currencies. Due diligence should be continues effort. You need to be prepared for any changes that may occur in the market conditions, regulations and world events.

Developing a trading plan should also be a part of your ongoing research.

 How to Avoid Losing Money in Forex Trading

  1. Take your time to find the right broker

Due to lesser oversight when compared to other markets, it’s more possible to end up doing business with a not-so-reputable forex broker.

It is advisable that you choose a broker which is a member of the National Futures Association (NFA). A broker registered with the U.S. Commodity Futures Trading Commission (CFTC) as a futures commission merchant is also good. Finding a broker who has both qualifications will be great. Different countries outside of the U.S. have their own legitimate forex brokers with which they should be listed.

The major part of the previous tip is here: research. You should learn the broker’s account offerings, including the commissions and spreads, account funding and withdrawal policies, leverage amounts and initial deposits. You can get most, if not all, of this information from a helpful customer representative of the firm.

  1. Use practice accounts

Almost all trading platforms offers practice accounts or demo accounts. When you start to use a demo account, it will allow you to place theoretical trades without funding the account. It will also allow you to become increasingly proficient at order entry techniques.

There are a couple of things that can damage a trading account – and your confidence – such as pushing the wrong butting when opening or exiting a position. Multiple errors committed in order entry might turn out into large, unprotected losing trades. Aside from devastating financial losses, it will also incredibly increase your stress levels.

If you do end up making these mistakes, you should know that you wouldn’t be the first one. Practice makes perfect. Demo accounts will allow you to learn from your mistakes without incurring the devastating losses.

  1. Understand tax implications and treatment

No matter what you enter in, it’s important that you understand how taxes work. It’s vital for you to comprehend the tax implications and treatment of forex trading activity. Understanding it will help you prepare when its tax time.

You can consult with a qualified accountant or tax specialist. They can help you avoid any unnecessary surprises at tax time. They can also guide into taking advantage of different tax laws. And since tax laws changes regularly, it is important that you build a relationship with a trusted and reliable professional who can guide you and help you manage all your tax-related matters.

  1. Start small when you go live

Once you finish doing your homework, done some practice, and have a solid trading plan, you can now go live! Meaning you can start trading using your real money. But know that no amount of practice trading can simulate the real thing. Which leads to the title of this tip: start small when you go live.

There are factors, such as emotions and slippage, that you can’t fully understand until you go live in a trading platform. Another thing, even though a trading plan you use in a demo account ends up being successful, it does not necessarily mean that it will also be successful in the actual forex trading market.

When you start small, you can then assess your trading plan and emotions. You can also gather more experience through practicing how to perform exact order entries.

  1. Use reasonable leverage

Leverage can go two ways, remember that. Forex trading can provide you with a unique amount of leverage. High leverage can help you make high profits even if you only have a small amount of investment. But it can also turn around and easily amplify your losses.

  1. Keep charts clean

Once you start your own trading account, you might be tempted to take advantage of all the offered technical analysis tools by the trading platform. Despite this, you should strive to keep analysis techniques to a minimum. This is to help ensure that they will be effective.

scattered forex paper bills

  1. Protect your trading account

Even though forex trading is mostly viewed to be money making market, it’s still imperative to learn how to avoid losing money.

Proper money management techniques should be employed for successful trading. Most veterans in the market will agree that any trader can enter a position at any price and still end up making money. What matters is how you would get of trading.

It’s important for you to know when to accept your loss and simply move on. One of the best ways to prevent unreasonable losses is by implementing protective stop loss. You can also try using a maximum daily loss amount. This will close all positions and no new trades can be started until the next trading session. Even though it’s important to limit losses, it is also imperative that you protect your profits. You can employ trailing stops to help preserve your winnings while still leaving enough space for growth.

  1. Maintain good records

One of the most effective ways to track both your losses and successes is by keeping a trading journal.

You can list down your trading activity which contains dates, instruments, profits, losses, and, possibly, your evaluation of your own performance and emotions. Listing down such things can help you see your development and what else can be improved. It can provide important feedback that can help in your learning.

Think about it. Without a trading journal to keep tabs on your activities, you could end up doing the same mistakes over and over again. This could lead to minimal chance of becoming successful and profitable traders.

  1. Trading is Business

You should treat forex trading as a business. Also, remember that each and every loss and win does not matter in the short run. You success will be measured by how the trading business performs over time, this is what’s important.

As much as you can, try to avoid becoming overly emotional, whether over a loss or win. Simply regard each day as just another normal office day.

But just like with any other business, forex trading will sustain losses, expenses, risk, uncertainty, and taxes. Also, just like with small business, it’s rare for a forex trader to become successful overnight.

You should set up a plan, set realistic goals, stay organized, and learn from both of your successes and failures. Such a view in the situation will help ensure that you will have a long and successful career as a forex trader.

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