One can make a lot of money trading foreign currency rates. In Forex it is possible for traders to trade on margins of five percent or even lower. This means that with $10,000 of trading capital you could, in theory, trade $200,000 with a five percent margin account. If the market moves one percent and you trade so that you gain all the profit for the day that gives you a $2,000 return on the $10,000 in your margin account. The problem is that even the best traders do not win all of the time and sometimes the worst Forex trades end up in huge losses. In the world of long term investing people listen to the likes of Warren Buffet who says that the first rule is not to lose money and the second rule is to never forget the first rule. Forex traders are wise to keep this advice in mine. With avoidance of loss in mind, here are a few thoughts regarding the worst Forex trades and how to avoid them.
Work All Day; Trade All Night; Fall Asleep at the Wheel
A friend of this author was trading on a very steep margin and was well up for the trading session. He expected to net well over $60,000 for his efforts. However, he worked a full time day job and was trading on the Tokyo market which was night time in New York. He was tired but his session was so successful that he wanted to make a little more before stopping. He did not pay attention to the clock and the market closed when he still had money on the table. To compound the issue it was the end of the week and he could not get out of his trade until the market opened the following Monday. He agonized all weekend as after-hours trading threatened to take away all of his profits and more provided that the Tokyo market opened the same as after-hours trading indicated. Lucky for my friend there was a piece of Forex news that hit just before Tokyo opened and the market opened with his trade showing a $90,000 profit. He closed out the trade and thanked his lucky stars. A good way to avoid the worst Forex trades is keep track of time and close out your trades for good or for bad before the market closes.
All of the Eggs in One Basket
Forex trend trading can be profitable. Often times a trader will buy a falling currency and wait for it to go back up. But, if the trader puts all of his trading capital into the trade he can get stuck waiting for the turn around and miss other promising trades. In this case the worst Forex trades have to do with missed opportunity.
Not a Trip to the Casino
There are sure ways to lose money trading Forex. The worst Forex trades happen when fear, greed, and gambling take over. A sound Forex strategy can make you money. Deciding to go with your gut instead of your strategy is a good way to lose all of your hard earned trading capital.