Avoiding Forex Dangers

Avoiding Forex Dangers

Avoiding Forex Dangers

The attraction of making money quick has been drawing a lot of people towards forex trading. There are good reasons why they are attracted; the forex market is the biggest financial market in the world and with huge amounts of money circulating, estimated to reach more than three million dollars a day, the temptation to get a piece of the action is quite reasonable. Unfortunately a lot of newcomers get burned in initial tries and either they got no more money to invest or they got really chastised by the experience. Some, however, manage stay on board. The secret why they succeeded while majority failed is because they understood right at the very start that though you can earn money from trading forex fast, you can only lose money just as fast. The market offers great opportunities for profit taking but it is littered with forex dangers as well.

One of the trading practices that holds a lot promise but is fraught with hidden dangers is forex leverage. The use of leverage allows people to control bigger trades with just a minimum deposit on their trading accounts. The higher the leverage, say 400:1, the bigger the trades you can set-up. Naturally, a few pips moving your predicted path earns you big money, but a few pips moving against your position can wipe you out in a matter of minutes. Evidently, it's not advisable for newcomers just learning the ropes to go for high leveraged trades. It is more prudent to be content with low but steady earnings until they have perfected a foolproof trading strategy.

Another forex danger you must avoid is not using the stop loss/gain mechanism that every forex platform provides properly. The stop loss/gain puts a limit to your losses should the market goes against you. It provides you breathing room to assess your position and make some adjustments. As long as something is left in your account there's still a chance of recovering and even earning with fine-tuned stop gain/loss set-up and better trading strategy.

Failure to read forex movements or trends properly is the biggest boo-boo you can make and you will get you a heavy beating soon enough. So consult more experienced traders at least until you have learned to read forex charts well enough to trade without expert assistance. This danger is related to reading trends properly not reacting to major economic news or events. Usually major events like the OPEC increasing the price of oil create ripples in the market and it would be foolhardy not to make some adjustments to your trading position.

There are other dangers but the one with most impact is going into the market not having a tested trading plan. Study of the well established currency movement patterns is a must. You can always put them into a test during demo trades to see how they work in actual trading scenarios.

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