As a result of lots of big success stories circling in Forex trading, a great number of investors are joining the industry every day. This industry has reached the milestone of 5 trillion dollars in transactions per day. Beginners are attracted by this huge number of transactions and lucrative profit potential. But, they are not aware that learning about the platform is a prerequisite for achieving success in this business.
Without having basic knowledge about the marketplace, rookie traders make things extremely hard for themselves. In today’s article, we are going to discuss the top five critical mistakes committed by rookie traders.
Selection of the broker
Choosing the wrong broker can be a big mistake, and a trader must be vigilant about this from the beginning. Some investors do not become attentive enough to choose the right broker, and this type of mistake can end their trading career. You should check the certification and necessary membership from the beginning so that you do not get cheated. Generally, the legal documents can be found in the footer section of a broker’s website.
Using the practice trading account
A demo account helps to learn more about Forex trading practically. Though beginners are very reluctant to use a demo account experts believe it is one of the valuable tools which may help them to sharpen their strategies. A demo account has all the facilities like the real account but the basic difference here is that investors need not use any real money. You may use a virtual currency where you don’t have to take any responsibility for the profit and loss.
Being new to this industry, always open the best demo account so that you can learn the advanced use of the Forex trading platform. Once you become comfortable with demo trading, start your journey with real money.
Understanding the leverage
Leverage may work as a great tool to provide you with investment power with a minimal deposit. Generally, 1:10 leverage power is provided to an investor who may sometimes vary according to the ability of the broker. Leverage indicates that if someone deposits $10, they can get the investment power of a $100 deposit.
Newbies must be careful about the use of the leverage as it may work as a two-edged sword. Taking too much leverage may increase the risk factors to a great extent. A trader must keep in mind that they are taking leverage as a loan from the broker. They must repay the money regardless of making a profit or loss. If traders lose a significant amount of money, they might end up with a negative balance. In such a case, brokers can suspend the trading account.
Use of Stop-loss point
Setting up a stop-loss point helps to save trades from being closed in a downtrend, but beginners are not eager to set a stop loss point which makes them suffer in the long run. A stop-loss point should be set near to the moving average in the downward position. A trader who sets a stop loss point does not have to worry about the downtrend as they know already when their trade will be closed. Beginners are very reluctant to set this point and take heavy losses later because of it.
Use of Take profit
We can make a guess where our profit goal should be. Newbies may not understand in the beginning what their profit point is likely to be. They should take help of experts as it is crucial. After obtaining a proper understanding, they should set a take profit point so that their trades are closed when a certain amount of money is made.
To conclude, we can say that a trader must be alert so that they can be free from losses. At least, you have to work hard and try to save yourself from necessary evils. Professionals take every step with rational thinking which helps them to succeed in the end.