Traders enter the currency trading market for a variety of reasons which may range from trying it out for fun to earning serious profit. Whatever the reason may be, it is common to see unexpected outcomes and not fully understand why it happened
Here Are 3 Things That Everyone Should Know Before Trading Forex:
1. Forex Will Not Make You Rich Overnight
While there have been success stories from forex trading, it did not happen overnight and it didn’t happen without suffering any losses along the way. The profit that a trader can generate is dependent on the amount of money he or she is willing to risk. As the famous saying does, you need to spend money to make money, and investing more will generate more. However, the larger your exposure is, the higher your risks will be. There are people who make forex trading their primary source of income. They have developed a strategy slowly over time and increased their exposure as they start seeing how effective their trading plan is.
There are traders who target 60-100% profit per year and even per month, but the risks they are willing to take are almost equal to their target. In short, having a 70% target profit means you must be ready to have a risk of 70% of your account too.
A high-profit target is possible with leverage which is also the reason why a lot of traders lose more than they can afford. Leverage can be used as an advantage but can quickly reverse and go against you.
2. Leverage Is a Double-Edged Sword
As mentioned above, leverage can be an advantage but can also ruin your strategy. The majority of traders will keep re-entering and go all-in when they consecutively win and generate profit. However, by doing this, it also takes just 1 or 2 bad trades to completely deplete their entire account. This is how leverage can cause a winning strategy to lose money. You can avoid this by choosing not to go more than 10x leverage.
3. Emotions Can Ruin Your Trades
As humans, we are emotional beings, and different emotions have an effect on most trading decisions. Anger and greed are 2 of the most dangerous emotion to have in forex trading. These emotions should be controlled and set aside. Never trade when you are angry because you will end up chasing losses and will end up losing more. Forex trading should be paired with patience and greed is exactly what tempts a trader to be impatient. Never let your emotions control your trading strategy. It is best to take a break after a couple of trades whatever the results may be. This helps a trader re-enter the market with a clear mind.