Forex trading is still one of the most popular ways to invest your money in the financial markets. By trading foreign currency pairs, you can capitalize on market changes and bank some pips in return. Forex trading is also more accessible than ever, especially since there are more online brokers offering their services and trading platforms today.
While getting started with forex trading is easy, jumping head first into the market is still not recommended. You want to spend some time learning about the market and how to best trade forex pairs. You also want to learn how you can make profitable trades and avoid losing money. The latter is what we are going to focus on in this article.
Trade with a Plan
One of the most important things to have when opening a position in the forex market is, well, a plan. You always want to enter the market with a clear vision of why you open the position, the profit you are expecting, and an exit strategy to rely on.
This means opening your position with clear Stop Loss (SL) and Target Profit (TP) already determined, at least in the mind. When the market turns against you, you can always limit your risks and close the positions at the predetermined SL.
Trading with a plan helps you avoid unnecessary mistakes. Since you already have a clear strategy in mind, reacting to sudden market changes and big jumps in prices becomes an easy task to complete. This is how you avoid losing money in forex trading.
Choose Your Broker
Some brokers have wider spreads on their platforms, and those wider spreads eat into your potential profit. Instead of opening a position with a small loss to make up for, you start your position with up to five pips in losses.
The spreads are basically determined by your broker since the spreads are how brokers make their money. InvestinGoal has this article on what forex spread is, and I highly recommend you read that article to get a clearer understanding.
So, should you trade at lower spreads? The answer to this question is a definite YES, especially since you can now find brokers with small spreads without having to make big initial deposits or investments.
Watch the News
As a forex trader, reading the news and keeping up with economic updates are important habits to get into. The last thing you want to experience is getting caught off guard by an economic announcement or a key market indicator announcement.
When used correctly, fundamental analysis based on news and updates will not only help you avoid losses but also help you bank more pips. You can trade with the market – instead of against it – and take advantage of high market volatility during economic announcements.
Losing money when trading foreign currency pairs is a risk that you must face, but it is a risk that can be managed. As long as you approach the market with a plan and implement the other tips and tricks covered in this article, avoiding losses is certainly easier.