Forex trading is like a double-edged blade. It can make you lots of money and can as well take all your money away from you. The truth of the matter is that forex trading is a business that is highly profitable and also has an equal amount of risks.
The thought of you going broke while trading on the forex market is a nightmare especially with all that cash you’ve thrown in there. But going broke when trading on the FX market is more common than you think it is.
Is Forex a Good Way To Make Money?
Yes, forex trading is one of the easiest ways to make money; if only you know how to play your game right. I am a good forex trader and I have always been able to repeat my success with different forex trading platforms and forex brokerage companies. Not a lot of people can claim to be successful or even half good in the FX market.
Truth be told, there are many unsuccessful traders in the Fx market compared to the successful ones. Even most of the successful ones reigned in the late 90s like George Soros, Andrew Kreiger, Stanley Druckenmiller and the rest of them. You can easily get rich by trading forex online.
I’ve looked at the profiles of successful forex traders and it was indeed amazing, and there are certainly many more successful forex traders to follow. But why does all the money you throw into this market end up as another person’s lunch? Where did it all go wrong?
Forex trading is conducted over the ‘interbank market’, an online channel where various currencies are traded 24/5. The Forex market is one with a global daily turnover estimated to exceed US$5 trillion.
You see a trade in a plain word is the buying and selling of goods and services on a market, with a seller hoping to make a profit and the buyer hoping to get a good or service at a cheap price.
The forex market is no such market. This is a market where both the seller’s goods or services is at risk and all your money as a buyer can be lost. Professional forex traders make thousands of Dollars in gain annually, while amateurs are those that have money to give out.
I’ve seen people with my very eyes squander $500 in less than 3 minutes and believe that’s too scary even for me. And even the central banks of these nations are working against (or for) your cause. This a business with way too much high risk and high gain margin.
Everyone one the forex market are not just buyers and sellers but investors. Investing your money in the wrong places would cost you.
7 Reasons Why Forex Trading Will Make You Broke And Bankrupt
So, here are the 7 best reasons why forex would make you broke this year and how to avoid these flaws.
Let’s get right down to it.
1. You Believe That You Will Get Rich Trading
The idea that you will get rich trading is a very deceptive one. You are more interested in “how to make money in forex fast” than learning the best “forex trading strategies“. Yes, you can with the right methods, but if not, your chances are just too slim.
It is a well-known fact that in the forex market that 90% of Forex retail traders do not succeed. Some publications quote failure rates as high as 95%.
Without the right methods, you’ll risk too much money and end up going broke. Trading forex online is one of the fastest ways to go broke.
Forex Trading is an investment opportunity to grow your wealth and not get a get rich quick scheme. You don’t make thousands of profits in a day, it takes years before you can know your way around the market.
Instead of trying to make millions daily, grow your account to make millions in profit biannual (it cheaper, safer and recommended) withdraw the profit and continue trading on the capital.
2. Trade too much
You will fail and lose your money when you becloud yourself with the thoughts that forex trading would make you. The forex market is considerably different from the equity market. Thus, the chances of new traders going broke while trading is always high.
Over-trading is a common mistake made by new and inexperienced forex traders. Forex trading is a good way to make money but definitely not the best way to make money.
Over-trading does not help you make more money in forex, instead, it does the reverse. What you probably didn’t know is that your money is at risk immediately you fund your forex account.
Trading too much will just help clear your account faster. You should learn about the forex trading for beginners before pumping your money into the FX market.
Forex is not a get-rich-quick scheme. A lot of people (mentors, sites and training program) have mentioned discipline as a key factor for successful trading. I have always been sceptical about this factor but as it turns out, they all have a point on this one.
You should be to keep your greed in check as soon as you’re ready to trade. Wait for the best setups (sell signals) and learn to be patient.
3. Poor money management
Many people open a trade without using a stop loss that is proportionate with the time frame thereby getting knocked out over and over again.
Stop loss is surely the most important things in trading. Those who do not set a stop loss will be knocked out of the game sooner than later.
Without a stop loss, you can easily wipe out a million dollar account with just one position. This is the fastest way to go broke trading. Set up stop loss and calculate your risk before you enter a trade.
READ MORE: 6 Signs That You’re Not Financially Stable
4. You’re Lucky
Yes, your luck is just too much. Your demo account is estimated to be up to $2,000,000 (Two million USD). Well, as sad as it is that luck will surely run out as soon as you get a real account (live trading).
Avoiding the maths and trading based on hints and guesses is just a sad way to trade.
This trials and errors are not just unethical, it is ineffective and inefficient when it comes to FX trading. The FX market is not a gamble where you’re gambling with a negative expected value like at a casino, betting that one nation’s currency will be able to buy more of another nation’s currency at a particular date like sports betting. FX trading is pure commerce.
Without an atom of doubt, this is the most expensive way to learn to trade the currency markets. You get rich by trading forex randomly; you are not going to be lucky every day. If you trade based on luck, one day you win, and the other day you lose all you have already made. Believe me, every loss counts.
So don’t trade on emotions or hunches. You better learn a thing or two on macroeconomics and instead of learning from your mistakes, look up to the strategies and testimonies of successful traders and learn from them.
Success requires dedicated efforts to master the strategies involved. Study graphs, gains, and losses during the weekend and make pre-trading predictions (scenario analysis).
5. Using the same old tactics
Placing the EUR over the USD in a long position is your key plan and this has been working for you every single time. You don’t need to analyze the chart or check the market, sometimes you win and sometimes you lose. This is not a tactic but a bet on probability and is the reason there are more unsuccessful traders out there. Forex trading is profitable especially when you’re using the right strategy to trade.
A smart forex trader always has a business plan which guides his activities in the foreign exchange market. Whether you trade in the FX market, cryptocurrencies, assets or your own store, having an in-depth plan makes it easy for you to achieve your laid-down objectives and goals i.e. Risk management rules and return on investment (ROI).
There is no foolproof method when it comes to successful trading but you sure can minimize your loss to the lowest margin. Get a solid and strategic trading plan and adhere to it. This will help you evade some of the most common trading pitfalls. You can get these strategies by joining online courses, looking up testimonies of successful traders and following up top-notch e-books and articles.
This is another important point. Illiteracy or ignorance is one factor that could make you broke in the FX market. Ignoring the chart technical analysis will cost you dearly.
Let’s look at it this way, since thе price оf thе currency іѕ largely depends оn thе demand fоr іt, you need to know what influences demand (inflation аnd interest rates, trade agreements bеtwееn thе countries whоѕе currency іѕ being traded, GDP, budget plans, budget deficits, stock market, economic аnd political soundness оf thе country), So you саn make а precise decision оn whеthеr оr nоt tо buy the currency оr sell thе currency you have іn hand.
So, Making good use of technical analysis, trading charts and getting trading secrets is one way to guard against bankruptcy on this market. Besides, the charts don’t lie.
7. Depending on software for analysis & trade
Yes, the software does help also. Before actually going into live trading, it is advised that you practice trading with a demo account as almost every forex broker has a demo account.
The Metatrader 4 (MT4) forex trading platform is widely used by forex traders. If you learn to use these tools then, you’re on your way to success. However, this is one of the fastest ways to go bankrupt while trading. A glitch in your software can spend all your investments away.
There are good robots and faulty robots out there. Some will work well for you and others won’t quite keep up. Not every app was built to perfection; some comes with bugs and glitches that would terminate your forex trading career.
A robot is just software and will sometimes come up with bad answers. If you can’t recognize that, you’re risking all your money. You need to know if your robot is giving you the right trading signal, and you’ll only do that when you can study the chart and have educated yourself about forex.
8. Your mentality
When you Google the phrase “successful forex traders“, one common answer you’ll get from all the blog, sites and article is discipline, strategy, and experience. I think successful forex traders think differently from the rest. They are not concerned with high win rate or constant trade.
You have got to restrain certain behaviours like greed. Greed makes you place your money in the wrong places. Although it is still a rational idea, it is quite sensible.
” Traders who let emotion get in the way of their trades do not prosper over the long term. ” – Quora. So, trading on emotions or hunches is a bad idea.
9. Unhealthy Competition
Unhealthy and unnecessary competition is one of the best reasons why forex traders go broke. You want to earn more money than another, you’ll end up losing more money than the other. This is another reason why you could go broke trading. Unnecessary rivalry will create this feeling to urge you to trade more.
As I said, The only difference between a trader that earns 200 pips in profit daily and one that gets 2000 pips daily is just the numbers. They are different traders that both used different analysis, tools, and courses but make a profit at the end of the day.
Unessecary competition is not needed when trading in the forex market. Every trader has his own style and method of analysis. Instead, partner up, get mentors and educate yourself about the market and get the job done.
10. Your Broker
Yes, your broker can indeed make you go broke. Every country has a body that regulates forex trading and your broker may not have the required licenses. Before they fold up, they must have extorted a lot of money from you and since they were not registered, your complaints will be futile. Not every broker comes with the same degree of trust and security.
Like a psychologist would say, “it is all in your head”. Trading currency pairs in the FX market is an awesome journey that embarks when your mindset is to make a profit. If you turn that greed into determination, you’ll actually make more money in the forex market and lose less. So, you must be clever and trade smarter.
This article was not meant to discourage you from venturing into the FX market but serve as an eye opener so you will not end up as an unsuccessful trader. The steps above reveal the flaws of most traders and loopholes that will guide you on how to to become a more refined trader. Trading is an art, and the only way to become increasingly proficient is through consistent and disciplined practice, if you can’t, you will definitely become bankrupt trading on the FX market.