Who would have thought that trading currency could be so lucrative? Incredibly, there’s around $6.6 trillion traded globally every single day on the forex market, with this number having increased markedly during the digital age.
While it may be easier than ever to access the forex market and execute orders, however, this doesn’t mean that you’re bound to achieve profitability as a novice (or even experienced) trader.
In this post, we’ll appraise three key lessons from experienced traders, while asking why they’re so important for those hoping to make their way and achieve success within the forex market.
- You Have to Take the Occasional ‘L’
While the notion that as many as 99% of forex trading accounts record losses, there’s no doubt that the majority of currency traders do struggle to achieve a viable profit.
In fact, the losing account percentage varies from 66% to 90%, averaging out at around 77% overall.
If there’s a clear takeaway here, it’s that you’ll have to adopt a deterministic approach as a new trader and be prepared to incur losses at times, while creating a strategy based on minimising risk and managing your capital holdings.
To achieve this, be sure to use the stop loss feature on your forex trading account, while also starting small (with one or two currency pairings) before scaling your efforts organically in line with your experience and profitability.
- The Importance of Risk Management
This brings us neatly onto the topic of risk management, which is central to the goal of maximising your capital and avoiding the type of losses that can sink your account.
The use of stop losses is key in the forex market, as they essentially work by capping or closing individual positions once they’ve incurred a predetermined level of loss.
Beyond this, we’d also recommend that you limit your exposure by trading small and manageable lots, while simultaneously minimising your initial deposit size.
Also, take the opportunity to use so-called ‘demo accounts’ before trading for real, as this will offer you access to a simulated, real-time market and hone your carefully developed skills.
- Don’t Quit Your Job…. Yet
When pursuing the type of expansive and margin-based gains that are available in the forex market (along with the inflated leverage that currency trading provides), you may be tempted to make this your full-time career as soon as possible.
However, in the spirit of starting small and building practical skills that can sustain you over time, you should avoid taking this plunge and quitting your job until you’re able to showcase a solid history of profitability.
Instead, use the aforementioned demo account option to test your theoretical trading strategies and further develop your sense of determinism, before committing small amounts to real-time trading and deploying strategic stop losses where necessary.
You should also create a part-time trading schedule in line with your existing career and work-life balance, while it’s important to have clear financial objectives in mind before you make (and subsequently execute) plans to leave your day job.