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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 which people end up committing.
The reason why forex trading 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 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 dependant on the leverage ratio. Traders new to this business ideally look out for high leverage say for 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 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 of the trader would be used up.
The most common 7 mistakes that results in margin call are as follows:
1. 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.
2. High leveraging or over trading – It is imperative that a check is maintained on the leveraging amount.
3. 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.
4. 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.
5. Unavailing the stop loss order facility – It is advised that the trader uses this facility so as to prevent any further losses.
6. Allow highest draw on the account – Make sure you do not cross the limit as it would result in margin call.
7. 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.
In case you are one of those new entrants in the Forex trading business, you need to know the fact that the success rate has been about 5%. It also implies that with proper guidance and the right approach, you could among those 5% investors. Trading currency can fetch you money. For this you need to initiate the right trading plan. Unless you have a proper plan in store, it is not very easy to execute it and you would end up losing your hard earned money. Hence, it is imperative that you consider the following while entering this line of business.
Commissions are not charged by most of the Forex brokers. They earn revenue by way of dealings through buying and selling, holding currencies, selling them, rollover fees. The amount the broker gets is really huge. Hence, there is no need for a commission.
Sometimes a little support is essential especially when you want to invest money. It is very difficult for a naïve and new person to do business; the reason being doing business is not that easy. This is when the brokers come into the picture. They help you to glide through the problem without difficulty. Brokers help the investors in making the right investment decisions. The reason for forex brokers to gain popularity is the new and exciting avenues of forex market. Another important point worth mentioning is the best efforts put forth by the brokers. Many brokers have worked hard and smart to enable their clients make profits and good returns. Hence, the need for a good and trustworthy forex broker is felt.
Forex brokers guide and assist investors in effecting the right transactions. In case you are a novice and not very sure whether your decisions are right or not, you could always take the help of these experienced brokers. Many companies provide brokerage services. Some companies like to do business with investors who have bulk money to trade, whereas some of them like to provide services to clients with a range of investment portfolios.
This question is valid and not many investors probe into this question “Whether the forex brokers are really their friends? When you first enter this arena, you would have many questions for which you would require answers. The only valid person who would give you the right answer is the Forex broker. We have preconceived notions that Forex traders do not charge commission. This is a false notion. Therefore every broker would try and persuade his investor to do business; the reason being only if the trader invests the broker would earn money out of it.