The transition from novice to professional is made when one’s mindset moves from making money to saving money. Forex trading is a field of immense risk, and it is impossible to figure out when you will take a fall. Insuring your capital is the first step to take as a smart Forex trader. Since currency trades are of high value, along with added leverage, losing a trade will lead to incurring humongous losses! Starting off trading currencies, novices are driven to making money. As necessary as this motivation is, it leads to losing capital immediately. With the right money management steps in place, success is inevitable!
Here are 5 rules to follow for capital protection:
1) Take Baby Steps: Having $100,00 doesn’t mean you invest all of it. Several traders have the misconception that investing more capital will result in bigger profits! This is wrong; start off by investing small amounts. Once healthy profits make their way in, you can increment and take your trades to higher-valued positions, either with capital alone or along with leverage.
2) Dedicate Risk Capital: Losses are unavoidable in Forex trading, no matter how hard you dodge. Since there is no running away from it, the better idea is to keep a certain amount solely for the purpose of losing! This way, you stand protected, knowing that it is going to be lost either way. Dedicating investment for losses is a strong way of strengthening your mindset as a trader.
3) Play It Safe With Leverage: Getting greedy will be the costliest mistake you make in Forex, literally! Leverages are meant to upgrade your position in the markets. However, several traders overdo leveraging and end up borrowing amounts they can’t control. This ultimately leads to losing more money than ever invested.
4) Know The End Outcome: Trading is something that requires meticulous planning, in every single aspect. From your Forex trading strategy to its execution, to everything in between – accuracy has to be of the highest sort! Plan your trade, especially the outcome you expect. It can be experienced or money – without knowing where to go, commencing a journey will be in vain!
5) Place Stop Orders: Temptations get the better of man, at one point or the other. To keep from giving in, stop-losses are an impeccable remedy! By placing stop-losses, you will automatically be removed from a trade when a certain loss has already been made.
Capital protection should be your first priority as a Forex trader. Even the most experienced traders are amply careful when it comes to investing in foreign exchange markets.