Last Updated on February 5, 2022 by Patrick Mahinge
Your trading sucks. Or you are afraid of investing in forex trading because you are afraid of wiping out your account. Imagine depositing $100, $200, $500 or whichever capital you have set aside as forex investment only to receive a margin call after only a few trades…
You would probably walk away and spend the rest of your life trying to convince everyone how forex trading is not conducive. However, the truth of the matter would be that that you made mistakes- mistakes that you could have avoided had you traded more carefully.
Making mistakes in forex will cost you dearly. It will cost you money and your confidence. It will rob you of an opportunity to invest in one of the trades that has incredible returns for the meticulous trader.
At Kenya Forex Firm, our goal is to help you trade forex like a pro. One of the first steps to meticulous and profitable forex trading is to avoid making some of the common mistakes.
- Choosing the Wrong Forex Broker
- Not Using a Stop Loss
- Mistake #1 Misusing Your Account’s Leverage
- Mistake #2 Overlying on Indicators and Other Fancy Techies
- Mistake #3 Trading Without a Plan
Choosing the Wrong Forex Broker
Choosing the wrong forex broker is the number one mistake that new forex traders make. If you fail at choosing a forex broker, all odds are piled up against you. And regardless of how good you’re, it will be impossible for you to profit.
You might lose money, you might give up on forex trading or you might go bankrupt. Obviously, it is in your best interest to avoid making this mistake altogether.
So, how do you choose the best forex broker? What should be your priorities when shopping for a broker? And if you have already made some mistakes and are now looking to correct them, what should be changed? Let’s find out!
Below are listed 6 criteria that every good forex broker should meet. If your broker doesn’t meet most of these 6 criteria, you are most likely dealing with a scammer.
1- Licensed And Regulated By CySEC Or FCA
First off, you need to make sure that the forex broker that you plan on opening an account with is licensed and regulated by the top financial authorities in their respective countries. These regulators do not tolerate scams or unregulated businesses so if they license any forex brokers, it means that these brokers are on the clean side – at least for now.
The list below reveals all top financial watchdogs worldwide:
– Cyprus Securities Exchange Commission (CySec), Cyprus
– Financial Conduct Authority (FCA), Great Britain
Think carefully before choosing any forex broker that is not regulated by either of these financial authorities.
2- Reputation And Trustworthy
A forex broker’s reputation and trustworthiness ultimately affect your bottom line so it would pay off to choose a forex broker with a good one.
Put simply, if you have chosen a scammer, sooner or later you will get scammed. Unfortunately, most newbies fail to realize this simple fact!
So what do you need to look for?
First off, check out the forex broker’s website and social media pages. What are other traders saying about them? Make sure that they are satisfied with their experiences trading with this specific company. If not, move on to another forex broker!
Secondly, do some research and find out what types of complaints or issues that other traders have faced. If you see any recurring patterns, avoid using that forex broker at all costs! A good place to get honest forex broker reviews is on the Forex Peace Army Website.
3- Types Of Accounts Offered
The idea here is pretty simple: if a forex broker offers only the standard account without any bells and whistles attached to it, chances are high that this forex broker is under-regulated and under-scrutinized. Basically, they don’t pay enough attention to satisfying their clients.
On top of all, look for a forex broker who offers different types of accounts so you can choose the one best suited for your trading style and your current financial needs.
4- Trading Platforms And Tools
In general, most forex brokers use third party forex trading platforms. Traders from all over the world prefer MetaTrader4 or MT4 as their main solutions for trading forex and CFDs.
It is also essential to check out the mobile trading app that comes with your choice of a forex broker’s trading platform! If you want to trade on the go, make sure that your mobile app enables you to do so.
5- Deposit Methods And Minimum Deposit
Your broker should offer a wide array of deposit methods so you can choose the one best suited for your needs. At least 3-5 deposit options are a must have for every good forex broker!
Also, stick to brokers who offer minimum deposits of $200 and above. Don’t fall for brokers who offer their accounts with ridiculously low minimum deposit requirements! These are scam brokers and you shouldn’t trust them at all.
6- Transparency And Customer Support
Last but not least, make sure that your forex broker is transparent about their trading terms and conditions. Everything should be clearly stated on the website so there would be no misunderstandings or sudden changes once you operate your account with this specific broker.
Once you open an account with a forex broker, stick to it and don’t jump from one company to another every other day! Trade safely and you will soon see results come in fast and steady! Don’t rush things as impatience could cost you dearly later on down the line…
Not Using a Stop Loss
A stop-loss order is an order to sell a security when it reaches a certain price, known as the stop price. A stop-loss is designed to limit losses in case the security falls below the stop price. For example, if you buy shares of a company at $10 per share and set a stop loss at $9 per share, your broker will automatically sell the shares if they fall to $9 or below.
It’s important to use a stop-loss order when trading forex because forex prices can move rapidly and cause substantial losses in a short period of time. By using a stop-loss order, you can protect your profits and minimize your losses.
The biggest danger of trading forex without a stop loss is that you can quickly lose a lot of money if the market moves against you.
For example, if you buy EUR/USD and the market starts to move against you, your losses will rapidly increase as the price falls. In contrast, if you had set a stop loss order at, say, 1% below your purchase price, your losses would have been limited to 1% of your investment.
This is one of the main reasons why it’s so important to use stop losses when trading forex – they help to protect your capital from large losses in the event of a market move against you.
Mistake #1 Misusing Your Account’s Leverage
In forex trading, leverage lets you control huge chunks of money with very minimal deposits. For instance, if your forex broker offers leverage of 1:100, you would be able to trade currencies worth $40,000 with a deposit of $400 only. With this level of leverage, the profits can be very tidy. The opposite is also true. If a trade fails to go your way, the losses can be extremely messy.
Fortunately, many forex brokers allow you to choose the level of leverage that you would like to apply on your account.
My advice for every beginner forex trader there is to go for a leverage of 1:10 or trade with no leverage at all if you can afford a higher initial capital.
After limiting your leverage, you need to make sure that the trades you open are not too large for your account.
Closely related to the issue of leveraging is risk management. Fore every trade that you take, you should ensure that the potential profits are twice the potential loss. This way, your winning trades will always bring in more money than the losing trades are taking away.
Mistake #2 Overlying on Indicators and Other Fancy Techies
A lot of forex traders spend most of their time hunting for the perfect forex trade indicator and neglect the place where the real action takes place.
There is a sad truth in forex trading. Many technical indicators do not have any advantage over reading price action on the naked charts.
Before you are drawn into the cacophony of trading forex by relying on technical indicators, make sure that you can tell the direction the price will move from simply reading a price chart.
Don’t get caught in the nefarious pursuit for a perfect technical indicator. It does not exist.
Mistake #3 Trading Without a Plan
By failing to plan, you are planning to fail
A lot of beginner traders get into forex trading without a functional forex trading plan. However, like every other business, forex trading needs a clear plan.
It is a forex trading plan that keeps you regulated so that you do not exert unmitigated damage to yourself. In your plan, clearly outline the amount of daily profits you are targeting and the amount of daily losses you can accommodate. Once you hit this number, take a break.