The forex markets are now more accessible than ever before, with accounts easy to open, very small amounts of foreign currency needed, and everything available right on your computer (some brokers like Oanda even have mobile trading). It’s meant that there’s an increasing number of people trading the markets, which is great from the perspective of liquidity, but it does mean that there are quite a few people involved that are going to lose a fair amount of money – most frequently because they’re new to this. If you want to get started, or you’ve already done so, then you’ll want to know exactly how to avoid making those big losses that will cut you out for a long time. Here are some tips.
Don’t Risk Too Much
It seems fairly obvious, but if you don’t ever risk too much, you can’t lose too much either. You might hear of people making huge bucks in the forex market, but you can guarantee that these people are never investing more than a small percentage of their available capital at any given time. As a general rule, in any given position, you shouldn’t be putting in more than about 2% of what you’ve got. Do be aware of course that using leverage could amplify both your profits and losses, so incorporate this into your planning too.
Use the Stop Loss Order
Stop loss orders are a very good way of ensuring that you don’t lose too much. It’s essentially an order that automatically tells your broker to pull you out of the position as soon as the price of the currency pair you’re buying or selling moves too far in the opposite direction to the one you want it to go in. It’s a very good way of making sure nothing bad happens while you’re not watching the price, or guarding against something happening before you can react. You can set it wherever you like, but bear in mind that not giving the price enough room to move on both directions could mean you constantly close out losing positions unnecessarily.
The final point is that there is simply no substitute for proper research, because this will help keep you out of overly risky trades in the first place. The means knowing everything there is to know about the platform you’re using, the currency you’re trading, and the market as a whole.