Common Forex Trading Mistakes to Avoid


With a daily trading volume of a whopping $5.1 trillion, the forex trading market is regarded as the largest financial market in the world. It allows you to trade a huge array of currency pairs, which have different characteristics and can offer different level of returns. The best thing about the market is that it is operational 24/7 and it is easy to start trading because it has become quite accessible, thanks to the internet and technological advancement. While trading forex can be an exciting challenge and very rewarding, it can also turn out to be extremely discouraging if you are not careful. 

This is due to the fact that some people end up losing every penny they invest. Yes, the market does not come without its risk, but most of the time, it is traders who end up making mistakes that can cost them profits. Whether you are new to the world of forex trading or you an experienced trader, there are some common trading mistakes that you should avoid. Some of these are mentioned as follows:

Mistake 1: Failing to do your homework

There is a lot of homework to be done by a trader when they decide to trade forex currencies. It should be understood that currency pairs are linked closely to national economies and can be affected by numerous factors. The market is also working 24/7, which means there is something happening all the time. Before getting started, traders should first do their homework on the broker they are choosing. You need a reputable partner like RoyalStox that you can trust with your information and your money.

Likewise, you should never open a trade until you have done your homework. This means that you should be aware of upcoming events that can have an impact on your trades and also forecast the way these events can swing the markets. 

Mistake 2: Risking more than you can afford to lose

A common mistake that a lot of forex traders make is not understanding how leverage works. You need to be familiar with leverage and margin to ensure that you don’t accidentally risk more of your capital than you planned. It is helpful for traders to set a maximum percentage of the capital they are ready to risk in a single trade, such as 1% or 3%. For instance, if you have a capital of $50,000 and only wish to risk 2%, then you shouldn’t open a trade that would need more than $1,000 at a time. 

Mistake 3: Not having a net while trading 

It is simply not possible for a trader to watch the forex markets 24 hours a day. This is where they can use stop and limit orders because they help them in getting in and out of the market at specific prices. In this way, the trading platform will execute the trades even when you are not around. Moreover, it also helps a trader in thinking through till the end of their trade and setting exit strategies even before they enter a trade and let their emotions take control. There are various brokers, such as RoyalStox, which provide their clients the option of using stop and limit orders for their convenience and ease.

Mistake 4: Not controlling your reactions 

No one feels good after a loss. It can make you irrational and emotional and also tempt you to make knee-jerk trades that are not part of your trading plan. You need to accept that no trader can always make good trades all the time. Losses will happen as it is just part of trading and you should just follow your plan. In the long run, your trading plan will be able to compensate you for the loss you have suffered or else you should review your trading plan and make adjustments.

Mistake 5: Starting from scratch

Just like trading without any plan in place is risky, it is also not recommended to use your hard-earned money to test a new trading plan. It is better to open a practice account and use virtual funds for testing a plan. This will help you in keeping your losses under control and in fixing any mistakes you might be making while trading.