Forex is the decentralized, global currency trading market. Here currencies of different countries are traded off against each other in pairs. USD is the most popular currency to be traded off against EURO since most of the international trades are carried out in USD. EURO-USD is the most popular pairing in the Forex market.
It is often said that in the rush to win, one should not lose sight of the losses that they might make. This statement holds true for any trading market in the world. In FX too, making losses is a part and parcel of trading. However, while making profits, a trader should not get too bold and lose sight of the risks involved which might play his profits for a loss. Market trading, especially in domains like FX, is fraught with uncertainty and complex analysis. A quick look at the factors that contribute to making losses in the FX market, will help in deciphering the situation and aid in designing profit making resolutions.
Losses occur when:
- Traders do not optimize on demo accounts ;
- The base and counter currency speculation goes wrong ;
- Stop loss orders are not in place ;
- Over leveraging;
- Entry and exit opportunities are missed ;
- Misread charts and indicators;
- Emotions go out of hand ;
- Overtrading ; and
With these pointers in mind, a trader can work towards rectifying his or her strategies of trading in FX, to minimize the losses. However, the death knell is rung when the traders actually make losses. Yet a loss should never mean a death knell. According to Kishore M, a Dubai based FX expert, a planned recovery is what makes the situation reverse for better. Recovery from a loss, many times, means regaining the lost investment. For instance, if a trader has had a run of good luck and his predictions proved right, based on market monitoring, he may end up raking up a profit alongside. The process might be slow but patience here is a key again.
The path to recovery : Mind and money
Accept that losses have been incurred. Self-acceptance is the key to recovery. Reiterate that making losses is a part of trading. Remember that the best of the traders in FX suffered from losses. In the Forex market, it is a fact that most of the traders who are doing well, make more losses than profits. However, what worked for them is patience and a relook at what might have gone wrong. Acceptance of loss comes with admitting to the fact that there were some bad trading calls taken.
To recover the lost money, move on from the loss. Learn, unlearn and relearn the strategies and the ways to read clues that will help the trader make money when he enters the market after a break.
Stop Trading for a while.
There are various reasons for making this suggestion. One of the most important reason is to make room for psychological coping with the fact that “one of Forex accounts” was blown. Hence the losses made is a fact that a trader must face. Second, reassess the financial standing. Losses might mean that a trader had taken a leverage from the broker, which now needs to be repaid. Plus there are the broker fees and the spread to be taken care of. Third, if the broker account has slipped below the defined limit, there will be the additional burden of the Margin call. The wisest decision at this point in time would be to refrain from trading until the dues have been paid back.
Stop if you plan on an “all recovery” trading strategy:
A loss can be devastating if it comes to a huge amount. This spirals emotions of a trader out of hand with feelings of self-loathing, revenge, averaging down, and many more. This is when a devastated broker might end up trading harder to even out his losses and recover. This move will eventually turn, financially fatal. There have been reported incidences when traders facing this kind of a situation have ended up taking their own lives.
Restart with a micro Forex account:
In Kishore M’s words,” Once a trader always a trader”. While recovering from a loss, a trader might not be able to hold back from trading. This would mean that sooner or later, he will give in to his urge. Trouble will brew when he gets back to the market even before he has paid back all that he owes. To keep trading and still ensure safe trading, it is best to start trading via a micro account. These accounts do not allow a risk of more than 10 cents a pip. Moreover, this account can serve as a trial and error account to test out strategies.
Understand the need to take a break:
Trading becomes an everyday affair that gives traders the adrenaline rush. Keeping away from the market, even for their own sanity also becomes a challenge at times. However, post loss, a break becomes a must to rejuvenate and re-think about what could have saved his trade from the incurred losses. This will also give a trader a chance to reflect on his own strategy.
Go back to opening a demo account:
These accounts do not come with an expiration date. After a loss, it is a good idea to go back to the demo account and test out the strategy once more. Many of the seasoned traders do the same. A demo account helps in identifying the loopholes in the strategy and plugging some of the glitches, which could turn the strategy into a winning bet.
Recovering from a loss in the FX market is not easy. One, it means that a trader has lost money in the trades. Second, emotions run high and fatal mistakes are made when traders aggressively trade either to recover or to make profits off a trade which is already a distant probability.