There is high profit in forex trade but also high risk associated with the forex trade, 90% of trade loss is dependent on the trader only 10% external factors can sometimes affect the value of the currency and in turn the loss.
In this article I am defining few reasons that traders get loss:
For every action, there must be a plan to make that successful and trade in every sector requires an in-depth analysis of each and every perspective and requirements to plan all the steps required to make the trade profitable. Sometimes traders are not doing any planning, they just think that we have money and we are going to invest in the forex market, but this is not a proper way to start investing in the forex market, a proper plan is necessary to implement a trade.
Poor Risk Management Strategy
Managing the risk is the core point in trade, there is always a factor of risk associated with every trade. Every industry, sector and in every country, every type of trade either small or big require risk management,
The main steps in the proper Risk Management Strategy are:
- Identify the Risk
- Analyze the Prospective Risk
- Evaluate the frequency of Risk
- Plan for all the Risk types
Improper Trade Size
Determining the right size of currency, right pair of currency and the right time are the biggest factors in loss or gain of trade, some traders are not giving importance to the size of trade, but it matters a lot, a higher size of trade in the time of recession, or not picking the right pair of currency increases the risk factor, described briefly in this article How pip value affects the trade amount. The pip value is the smallest value in trade on the basis of pip value the trade is converted in other currencies and the calculation is done easily.
Lack of Professional Mentor
Advice is more likely to lead to success, but a mentor should be from the same sector or field in which you want to get in.
In the forex market, the advice person should be a person who had already a big experience of trading in the forex market, the advice will never lead to success if the mentor or advisor will be a vegetable or gold trader. A well-educated mentor or advisor is another factor that has high chances to get profit and saves the trader from risk apart from some external factors.
No Exit Plan
Whenever there is a starting plan strategy there must be an exit plan keeping in mind that if certain condition happens in this way so how one will have to act according to the situation. As an example, we can quote that if a trader losses US/EUR trade by 50% in this situation what else he/she can do to exit from the plan, there can be more than one option of a trading plan:
- He/she will accept the loss and sell out all the currency on whatever the decreed value is on the current time
- He will wait for the trade to be in good condition, till that he/she will just be waiting
- He/she will trade some portion and remaining will keep for the good conditions.
There are certainly other factors that lead to the profit and loss in forex trade, Trade is facilitating when properly planned from all the angles, a proper entry plan, right currency pairs, pip value, right percentage of leverage, right amount of trade, the right time to trade and the most important and last factor to consider is a proper exit plan according to all the possible situations that can come under forex trade. If one of any other mentioned factors is not included in the trade than the loss chances can be high. Apart from some exceptional factors and luck.