Foreign currency trading is not a game of averages. It is not a business where there is an assured rate of return either. It is more of a strategic business with high market dynamics involved. Mistakes are bound to happen, often inadvertently and sometimes due to ignorance. Most beginners tend to follow trends blindly and end in financial dead ends where their investment will have eroded in value. Take for instance these common mistakes in foreign exchange trading.
Over-reliance on market news and rumors
Not everything that comes on the internet and news scroll is worth believing. Often, they are blind prejudices of the news company and their own perspective about what could happen in the market in short-term. Unless it is warranted by industry experts and research analysts, do not attach any value to it. Rely only on information from credible sources that are known for their veracity.
Exceeding risk appetite
Every investor has his or her own risk appetite. Risk appetite is the maximum risk that they can afford to take in a given market scenario. Most often it is the investment that they have made in the business. Although the currency exchange business calls for extensive risk taking, such risks should be calculated and within the risk threshold. Exceeding risk appetite can lead to devastating results if the market fails to turn up with returns as anticipated.
Having unrealistic expectations
Like in any business, the foreign exchange business also requires an investor to set measurable goals. However, having unrealistic expectations and betting very high investments in a currency can lead to losses. It is better to avoid investing in currencies about which one does not have much in-depth knowledge. For instance, to trade in US dollars, one must have certain degree of understanding of how the US economy works, what Federal reserve means and how its decisions can impact a trader’s profitability.
Blindly trusting the broker
Brokers are professionals who help investors make appropriate investments. They share a fiduciary relationship with their clients. Although they are not responsible for making profits all the time, their decisions play a pivotal role in overall profitability. Ask yourself these questions before engaging a broker for currency exchange trading:
- Does he have a state license/permit for conducting currency trade?
- Is he professional certified?
- Extent of trust and reliability?
- Experience and track record of serving clients
Make sure you avoid these common currency trading mistakes in your routine. Avoiding them will definitely add to your long-term profitability.