When you trade on the FX market there are a number of mistake that you could be making. It is important that you know what these mistakes are so that you can avoid them in practice. When you are able to avoid these mistakes you will also be able to avoid the major losses that they can bring.
Using Too Much Leverage in FX
Many new and experienced FX traders get carried away when they look at the leverage that they can use. The forex market is different to many other markets in the fact that you are able to get very high amounts of leverage. There are many FX brokers that offer retail traders up to 400:1 leverage which is a lot higher than the 2:1 leverage on the stock market.
The availability of leverage and the benefits that you can get from its use is what makes traders make mistakes. The mistake is using more leverage than you should. Most trades will not actually need more leverage than 20:1. However, many traders use 100:1 leverage and more so that they can increase their potential profits. The problem is that when you use too much leverage you also increase the amount that you are going to lose if the trade moves against you.
Trading without Analysis
There are a lot of FX traders who trade on their gut and this is a big mistake. All trading that you do on the FX market needs to be based on market analysis. Market analysis is the technical or fundamental analysis of the future movements of the market. There are some traders who try and get around marker analysis by using rumour and market insight. Market insight should not be used to trade on. This is information that helps you to determine where to look when you complete your own analysis.
Unfounded tips and rumours are the same as trading on your gut. There is no way of knowing whether or not the rumour is based on fact. If you are not trading on facts then you are completing emotional trades which should be avoided.
Going Straight to High Risk FX Trading
Before you trade you are meant to determine what your risk capacity is. This is more than just your personal risk tolerance. When you look at risk capacity you are going to consider what you can tolerance and what you can financially handle on the market. A lot of traders make the mistake of starting with high risk trading because they have a high risk capacity. When you do this you are more likely to lose money than to make money.
All new traders should start with low risk trading until they gain the correct amount of confidence. When you have the confidence for high risk trading you can attempt this. The fact is that many traders who have a high risk capacity will not actually use high risk strategies. The dangers that come with this kind of trading will be too high. This causes the trading to be a less viable option for the trader.