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Top 10 Forex Mistakes

Trading forex has become incredibly popular during the past few years and can be incredibly lucrative. Forex traders have access to incredible amounts of leverage which can mean incredible profits and, unfortunately, losses. Successful forex traders share several characteristics in common including discipline, long term focus and extensive preparation and education. Forex trading is also high risk and currency markets can be volatile. During the current recession many successful forex traders have learned how to profit from a dismal economy. Like any kind of investing forex trading has its pitfalls but by avoiding common mistakes novice forex traders can mitigate some risk. Here are the top 10 mistakes commonly made by novice traders.

1.    Dealing with unlicensed forex traders.

Licensed forex traders are subject to regulations and will do everything in their power to make sure your trades are based on the best current market information. Unlicensed traders may take excessive risks especially when they are using the funds of others.

2.    Dealing With Offshore Forex Traders

Investing offshore is a real risk. While some offshore traders may be reputable there have been many scams reported and some would be traders have been swindled. If things go badly you will have no legal remedies available if you account goes south.

3.    Lack of Education

Forex trading is complex and without the proper education bad and costly decisions are bound to be made. Traders need to be able to analyze market news and act accordingly. Novice traders should have extensive knowledge of forex trading before the first trade is made.

4.    Failure to Understand leverage

Using the leverage available to forex traders can be a double edged sword. Traders who do not understand leverage are setting themselves up for huge losses. The greater the amount of leverage assumed by the investor the greater the risk.

5.    Not Checking References

Not checking the references of a forex trader can be a fatal mistake that could cost the investor dearly. Any successful forex trader should be able to provide multiple references.

6.    Investing Too Much Money

Forex trading is very high risk and traders should never invest more than they are willing to lose. Although the forex market can be very lucrative market conditions can change several times during the course of a day.

7.    Pursuing High Yields

As has been stated several times forex markets are volatile and long term stability should be the goal. New traders should use low or moderate risk strategies.

8.    Over Trading

New forex traders should limit their trading to one or two markets at first.

9.    Lack of a Trading Plan

Forex traders should establish both long and short term goals. Do not base the trading plan on hypothetical profits and use a clear logical approach. Set daily, weekly and monthly trading goals along with a long term plan.

10. Failure to Use   Use Logic and Reason

There are many websites hawking ‘foolproof’ forex trading methods and many other sites offering ‘hot’ forex tips. While many forex software trading platforms are based on scientific formulas and algorithms many other software platforms are scams. There is no substitute for a thorough education. Forex traders should always use logic and reason when making trading decisions.

While this list is by no means complete these are some of the most common mistakes novice forex traders make. Avoiding these mistakes can easily make the difference between profit and loss.

Quick Forex Tip: Interbank forex trading determines pricing in all levels of currency markets. Spreads available to interbank traders are sharp and unavailable to outsiders. Interbank traders who can guarantee a large number of transactions for large amounts can demand a smaller spread between the bid and ask price. Unfortunately these same spreads are not available to the average investor making relatively small transactions. Thus, for the average investor to participate in interbank forex trading, s/he must do so through the use of a broker.


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