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Currency trading is considered one of the most profitable but risky modes of investment. The total volume of the forex market has exceeded a whopping $5.3 trillion. Unfortunately, many (mostly beginners) in the forex market lose money and struggle to earn consistent earnings over a long period of time. There are some basic reasons why mostly new traders lose in the currency market, let’s discuss a few of them.

Greed / Lack of Planning

The first and foremost reason for failure is greed. Mostly, newbies want to become rich overnight. They lack in planning and ignore the golden rule of trading: “plan your trade and then trade your plan.” Panic is common in such traders; they often close their trades in low profits and high losses.

Lack of Knowledge

Mostly unsuccessful traders lack fundamental and technical analysis skills. They don’t know how to insert trendlines, Fibonacci levels, or other technical indicators. Such traders mostly trade on news when relatively high volatility is observed in the market. Similarly, they fail to understand macroeconomic and geopolitical situations. Lack of knowledge is the second most common reason for failure in the market.

No Money Management

Many newbies and unsuccessful traders also know nothing about money management. They often risk more than 50% of their entire investment, which is a totally insane approach. On the other hand, a seasoned and successful trader never risks more than 1% to 5% of their total investment.

Overtrading

Overtrading is also a common trait of unsuccessful traders. They usually trade more than 10 times a day, with each trade ending up with small profits or high losses, which is obviously a bad approach for trading. Conversely, a successful trader usually places only 3-4 trades a week with the aim of getting substantial profits. Overtrading is another major reason for failure in the foreign exchange market.

Conclusion

Traders lose money in the forex market mostly because of their own mistakes; however, some other factors such as scams from brokerages or high slippage could also be responsible for big losses. It is always wise and recommended to adopt diversity in your investment, i.e., maintain more than one trading account and invest in more than one asset. The higher the diversity, the lesser the chance for losses. This was a brief guide on some common mistakes in currency trading.

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Ihab Salloum