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Five tips to avoid losing money in forex

5 min read

22 July 2019

The global forex industry trades over $4 trillion in average daily trading volume, making it the biggest financial market on the planet. How do you make the most of it?

Forex’s popularity allures foreign-exchange traders across all levels, from newbies who are just discovering the opportunities in the forex market to well-prepared experts.

Despite how natural it is to trade forex – with non-stop sessions, access to critical leverage and generally low costs – it is likewise exceptionally easy to lose cash exchanging forex. Here are seven different ways that traders can avoid losing cash in the highly competitive and risky forex market.

Find a reputable broker

Unlike many other financial markets, the forex market has much less oversight. Hence, you may find yourself working with a less-than-reputable forex broker.

Before you delve into the forex market fully, ensure you are working with a broker you can trust because the overall integrity of a broker is essential to the safety of your deposits, as well as your chances of hitting it well in the forex industry.

A good way to start is to check whether or not the broker you are choosing is registered. Each country has its own regulatory body with which reputable and legitimate brokers will register. If your dealings are within the UK, ensure you are doing business with FCA forex brokers. 

Keep your charts clean

As a trader, once you open an account, it may be tempting for you to utilise every technical analysis tool offered by the trading platform. However, what every trader should keep in mind is that – even though many of these indicators are best suited to the forex industry – it is still crucial to keep analysis techniques to a minimum so that the techniques might be effective eventually.

For instance, a very common practice is when traders use multiples of the same types of indicators – say, two oscillators or two volatility indicators. What you should note is that, when you combine multiple indicators like these, they become redundant and this can even give opposing signals.

Protect your trading account

While everyone’s focus in the forex market is channelled into making money, it is also vital to learn and know how to avoid losing it. Proper money management techniques are a vital part of any successful trade, and many forex experts would agree that you can enter a position at any price and still make money.

It’s not always about how you go into the trade, but how you exit the trade that matters. Think carefully about when it’s time for you to move on from a loss.

A good practice to consider is using a protective stop loss, which is an effective way of making sure that your losses remain minimal and reasonable. You could also use a maximum daily loss amount, beyond which no new trades would be initiated and every position would be closed until the next trading session. 

Use a practice account

Some might argue that you don’t need a demo account. However, if you are really interested in raising your level of alertness and cutting out the possibility of losing money in forex, you need to start practising with a demo account.

Virtually all forex trading platforms offer a practice account, which is sometimes called a demo account or simulated account. The catch here is that you get to trade hypothetically with a zero-funded account. Perhaps the most important perk of a simulated account is that it permits you to become adept at order-entry techniques.

There is nothing more damaging to a trading account than pushing the wrong button when entering or exiting a position in forex. Unfortunately, these events are not uncommon. For instance, it is not uncommon for a newbie trader to unknowingly add to a losing position instead of exiting the trade. Events like these are what a practice account prepares you against.

When going live, start small

Once you’ve fully equipped yourself with all of the tips above, it may be time to go live – that is, go into trades with real money. However, it is crucial to note that no amount of demo trading can exactly simulate real-time trading. Hence, it is very vital for a forex trader to start small when going live.