Forex is the most sophisticated profession in the world. In this profession you can easily start making a decent income. Every day, more than $4.5 trillion is traded in the Forex market. But earning profit is not that simple. Almost 97 percent of Forex traders loses money and leave this profession. Only 3 percent traders can earn money from it. Though trading is a very profitable business, there are some common reasons why retail traders lose money in trading. Some of the reasons are described below.
Little learning is bad thing
Every day, many traders join the trading industry with a hope to earn money. They think making money via trading is an easy job. They read and watch some Forex tutorials and consider themselves as Forex traders. In the beginning they can earn a small amount of money and think of themselves as a trader. As a result, they don’t try to learn more. Eventually, they start losing money and get demotivated. Many traders don’t have any idea about fundamental and technical analysis which is the core factor of trading. Some use a few indicators without knowing how they actually work. So educate yourself properly before starting to trade.
Trading with small capital
In the Forex industry there is a term called leverage. Those who have small amount of money, can take advantage of leverage. But it’s really dangerous for the new traders because they don’t know the perfect way to manage the risk. It’s true that you can earn money from this market with any amount of capital but once you start earning without having any knowledge, its make you overconfident. As a result, you start to increase your lot size. However, by increasing the lot size, you also increase the risk factors. Therefore, blowing your trading account is easier than earning from it.
However, if you manage to learn the perfect way to use the leverage, you can earn a living with a small capital. But still the stake is high when you use a high leverage. The pro traders in the Forex trading industry always prefer to use low risk in trading. So, learn to trade in such a way so that you don’t have to blow up your account.
Having poor risk management plan
If you want to survive in trading, you must maintain some risk management policy. There are many highly skilled traders who are in this industry for quite a long time and are still losing money because they are not following risk management policy. They do not place any stop loss or take profit. At times, they don’t close the open positions even though they know it has a high chance of hitting the stop loss.
Trading with greed
Everyone wants to get rich quickly. In Forex industry people becomes greedy easily. Some traders try win all the trades. They want to become millionaire without spending any time. This is why they start trading in big lots. Sometimes they don’t close the trade even though they have secured a decent profit. But the market can go against you in any second and you might lose all the profit. So, learn more how to close the trades at the perfect time so that you don’t end up by losing money.
Trading with confusion
Before opening a trade, you must do the proper market analysis. If you are confused with the trade signals, ignore the trade setup. Ignore the rumors that you face in the market. Always be confident in your decisions and stick to them.
Trading against the trend
A trader should always trade in favor of the trend. They should also accept the major reversal. Always keep a close eye on the market to find the difference between reversal and retracement. Try to find the trade setups at the end point of the retracement so that you don’t have to use any wide stop loss.