Forex Trading calls for in-depth knowledge and it is important that one understands the business well. This would help you in achieving profits. Hence, it is advised that you do your research well before getting started, so as to avoid making some very common mistakes that people end up committing.
The reason why forex traders end up committing these mistakes is that they trade without understanding the entire concept and do business blindly. Some very common mistakes committed by a novice trader are that of a margin call.
Investors make terrible decisions while trading and all these dreams are shattered – the prime cause for the loss is Margin Call. So let us now understand the concept of ‘Margin Call’ and the mistakes which are commonly committed.
Margin is the minimum deposit amount which is required of a trader to trade in a particular lot size. This is the minimum amount required to be deposited with the broker and it is directly dependent on the leverage ratio.
Traders new to this business ideally look out for high leverage say e.g. 250-1 & 400-1. This implies that a lesser margin is required to trade in bigger amounts. Under normal circumstances, this is considered ideal but in this case, it is not. An example of this is as follows:
A Forex investor invests $500 in his forex account and does business with a leverage of 250-1. This implies that for trading a lot of 100,000$, an amount of 400$ needs to be deposited. This would result in a pip gain of 100$ which is just superb for this nominal investment.
This then takes us to the concept of Margin Call. Margin Call comes into effect when the broker informs you that the margin amount would not be sufficient to cover the losses incurred by you – this means that you would be losing out on the deposit amount.
As mentioned in the example above, a loss of 4 pip means that you would incur a loss of 400$ as well as a margin call. The amount of money the trader would be used up.
Seven Common Mistakes Made By Forex Traders
Lack of knowledge of news events – It is important that the trader keeps abreast of the events taking place in the forex market, so as to avoid any losses.
High leveraging or over trading – It is imperative that a check is maintained on the leveraging amount.
Lack of trading system and plan – It is advised that a proper and exhaustive plan be drawn so that you know exactly how to go about it.
Pay attention to the very important concept of margin call – Understanding the importance and seriousness of margin call would help the investor in refraining from committing certain blunders.
Unavailing the stop loss order facility – It is advised that the trader uses this facility to prevent any further losses.
Allow the highest draw on the account – Make sure you do not cross the limit as it would result in a margin call.
Not paying heed to the trade experts and not conducting enough research – Keeping a track of the latest news from the trade professionals would help in taking some wise trading decisions.
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