It is clear by now that not many people could succeed in forex trading. The risk in this business could involve not only confidence, but also a considerable sum of money. Many failed in their beginner phase and refuse to get in again; some failed at first, then struggle to get the hang of it but later give it up for cheaper endeavor; and so on. But, how is our chance to actually win it for real?

It is clear by now that not many people could succeed in forex trading. The risk in this business could involve not only confidence, but also a considerable sum of money. Many failed in their beginner phase and refuse to get in again; some failed at first, then struggle to get the hang of it but later give it up for cheaper endeavor; and so on. But, how is our chance to actually win it for real?

danger

 

The Danger Of Forex Trading

It has been long said that nine out of ten forex traders are losing money. Where did people know this? Previously, it was just a jargon based on some kind of assumption. But this is confirmed by a newly published study by France financial regulator, Autorite Des Marches Financiers (AMF).

An AMF news release on October 13, 2014, mentioned a study in which AMF surveyed participants of CFD and forex market in France. The study reviewed returns of 14,799 active individual investors in AMF-authorized financial service providers that deals with rolling spot forex, binary options, contracts for difference (CFDs) on currencies or any other type of underlying products, during 2009-2012. The result confirms general consensus that forex trading and its fellows are high-risk venture. Here is a summary of the result, copied word-by-word from AMF news release:

  • In four years, the percent of clients losing money for all providers combined is nearly 89%.
  • The average loss per client was nearly €10,900 between 2009 and 2012.
  • Over the four years, 13,224 clients together lost nearly €175 million, while the remaining 1,575 clients earned a total of €13.8 million.

Beside of that, AMF also stated that the study shed light on a behavioural phenomenon: individual investors learn little over time. Indeed, it appears that the most active and regular investors see their losses mount over time.

There are various ways how one could lose money due to forex trading, but to be fair, there are also various ways to avoid such fate. After all, the number of successful traders is not zero. Therefore, instead of looking on pessimistically, the better thing to do is to look for ways to manage the risks and attain optimum results.

 

Beware Of Scams And Marketing Ploys

Just like in any other kind of business, there are always people who tried to make us of general public ignorance by scam or false advertisements. Unfortunately, due to the nature of forex trading that is online-based, scammers could easily build new website and fake credentials. Fortunately though, there are numerous ways to spot a scam. If you cannot spot it yourself, there are many who could help you, financial regulators from various regions, as well as more experienced traders that gathered in forex forums everywhere.

Compared to spotting scam, recognizing false advertising is easier. In their effort to attract clients, forex brokers sometimes employ unhealthy marketing strategy, such as boiler room or tricky bonus. In order to avoid such trap, note that it is advisable for you to:

  • Never agree on anything on the spot. It is true that one have to be able to decide quickly, but no one absolutely has to make important investment decision on the spot. Give yourself sometime to think and consider your options; remember that your money is on the line.
  • Read terms and conditions carefully. Make sure that you have read and agree to the terms and conditions of the service provided, including the small prints.
  • Scroll back to the beginning of this article and read the result of AMF study once again. What do you get from it? If it could be summed up in one sentence, it is: no one can guarantee your profit in forex trading. Consequently, if someone assures you that you will receive a certain percentage each month, you could rightly mark it as false advert.

 

Educate Yourself

Education is key in forex trading. Forex trading is not simply buy and sell, because you need to know the underlying reasons, that is technical and fundamental basis, as well as how to buy and sell (aka. strategy). Even those who have studied economics at college might not have what it takes to succeed in forex trading, due to its unique nature.

Where can we learn forex trading? Forex brokers typically provide educational section, be it attractive tutorial in their website, webinars, seminars, and so on. You could also learn under more experienced traders' guidance or various other forex education services. Some forex-based websites even prepare free forex school where one could learn forex from A to Z independently and discuss the materials with fellow traders. In short, there are many ways to learn forex. It could be free or costly, but the most important thing is what you could get out of it. As long as you could educate yourself, the ways don't matter.

 

Plan Your Trade

As in any other business, you need to plan your actions instead of just doing everything without proper management. Well-organized trade could give you good lesson out of a trade, as well as good return in the long-term. If you don't have proper plan in place, you will just open trades without understanding why you open it right then and there. Consequently, you will not understand why that trade wins or losses, and where is your position in attaining your trading goals. That way, you shall never succeed.

Manage Your Capital

Money management and risk management might be the most vital part of forex trading. Your trading strategy and goals do not matter as much as how you allocate your capital to balance risk and reward potentials. Failure in managing your capital most assuredly will end with heavy losses. Even if, say, you are experiencing fantastic winning streak, without proper management, all of your profit and capital could be easily wiped out by a single loss. But with the right management, not only you will be able to rule out such happenings, but you could also optimize your profitability.

In order to do that, many traders suggest to avoid high leverage and to use only a certain percentage of your capital to open trades at a time. The use of high leverage (ie. more than 1:200) blurs your perspective and make it more difficult for you to manage your real capital outside of its leveraged power. On the other hand, percentage rule puts a limit to how much of the capital one may use to open trades at a time. The five precent rule, for example, allows one to use five percent of his capital to open trades. He may use it to open only one position, or several at the same time. The rest 95% of the capital provides relatively large margin for when prices move unfavorable, and give time for open positions to reach their target profit. As such, the possibility for an account to be wiped out at once in a short time became smaller. Of course, you could use other kind of money management as well.

Learn From Experience

Another thing we could learn from AMF study is not to just lose money and gain nothing. If you have to lose money, make sure you learn something from it, so that you could improve the quality of future trades. For cheaper experience, you could also learn from other people's experiences. This might seem trivial, but it is one of the main components of how to be successful in forex trading.

From experience, you will understand how to optimize features available in a trading platform. How to apply and interpret technical indicators for maximum result, how to make pending orders perform best, how to better measure the length of stop loss/profit target or applying trailing stop, news to avoid and to bet in, etc. These are not stuffs you could learn just by reading books or watching tutorials; you have to actually experience forex trading to get the feel of it and sense changes on price movements as it happens.