I know you must have heard the forex adage which says 95% of forex traders lose their money. It is no doubt that most people who calls forex a scam has in one way or the other lost their money in this lucrative business.I remember when I first started trading, I was very fortunate that I didn’t blow my account but I did lost part of my initial deposit in my forex account. I learn my lesson during this period; I came to my senses to find what I was doing wrong. Assuming I blew up my account I would have gone around shouting that forex is a scam like most people do.
There are also people who have or had flush more than one account down the drain (blown their account) these category of people do have the persistent attribute but they keep on doing the same thing over and over again while expecting a different result.
I went through all the mistakes I made while I was learning how to get my hands around forex and I compiled a list of things that newbie and most existing forex traders are guilty of, that keeps killing their account.
Having High Expectation
When I started trading forex, I heard testimonies (results) of forex traders that were doing great in forex. About how they are making it big in forex, when I heard this I got so excited that I started imagining the things I could buy with the money gotten from trading and how I would acquire all my hearth desires.
These same things happen to most people out there they start day dreaming or develop this high expectation mentality thinking that forex is a get rich quick scheme. They start imagining themselves swimming in money, buying luxury cars, houses and travelling around the world.
Am sorry to bust your bubble, but the truth is that’s forex is NOT a way to earn $1000 from a $100 deposit in a space of three days or to make so much money that you can slap your boss and quit your day job. Most people you see that are full-time traders all started from somewhere and grew with the right knowledge to where they are now.
Using Scam Brokers
Every trader who needs to trade in the financial market whether stock, option or forex needs a brokerage company to be able to trade (except such trader has thousands of dollars to trade directly with the bank or Liquidity provider).
A broker is an intermediary between the market and you the trader, your broker carries your trade to the market, gives you bid and ask spread, gives leverage, etc.
In short words, your broker determine your profitability or lost, I always recommend traders to use a regulated and transparent brokerage company.
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Most brokers are scammers in the sense that they want to rip you of your money without you earning anything from them.
How do you identify a scam brokers:
- They still use the four digit price system– Any broker that still use the four digits in giving you a quote is probably a scammer. Example of a four digit is [0.01234] instead of seeing 0.12345 as the price, you see a price like 0.1234 which is just four digits exclude counting the number after the decimal point. The last digit which is called a point end up going to the brokers pocket so you’re getting an incomplete pricing.
- Ridiculous bonus – This brokers know that newbie always fall for free bonus as such they entice them to open an account to get a bonus or deposit before they can
withdraw their profit from the broker. Once a traders fall for this trick, they will try everything possible to make sure they rip off the trader’s money.
- Too much Re-quote– Though having a re-quote doesn’t mean a broker is a scam sometimes it might be from your own side such as slow or bad internet connection. But when you notice that the re-quote are too much then such broker should be placed on the watch list.
The above are some of the examples of how to identify a scam broker but there are many more ways such as checking the broker’s regulation and country of operation, negative slippage compare to the positive slippage, etc they are so much to mention.
Over trading and news trading are the path of least resistance to blow your account, this is one of the habit forex traders are fond off (over trading). Most traders believe that profit is made from the quantity of trade you are able to pull off in a day than the trade that went in your favour and this result to scalping.
Most people don’t know or have an idea that they over trade, one of the best ways to know if you over trade is to go to your trading history in the terminal check how many times a day you trade a certain pair and the direction either buy or sell, if you see that you trade a particular pair more than 5 times a day than your over trading and you need to reduce it to be on the save side.
News trading is the best time for scalpers to either blow their account or lost part of their initial deposit or escape to die (blow their account) some other time in the market
Being emotional doesn’t only happen when you’re with someone you love but when you’re trading the market you love too. Traders become emotional while trading which is very bad, imagining a CEO or a business owner being emotional or bias when running his organization there is a high chance that the company will go bankrupt soon enough.
Forex trading which is equivalent to owning a business should not be treated with emotion. Let’s look at some of these emotional traits that kill traders account.
- Fear – Fear to lose part of your profit or initial deposit money leads to losing everything in your broker account. Fear gives most forex traders the wrong impression that they cannot lose without a stop loss. This ideology is very wrong, but what happens when price move far away from your entry price and lead to margin call which is equal to a blown account.
- Greed – Have you seen a scalper trading with a lot size of 1 lot or more on a $100 account, that’s my forex definition of greed. Greed comes into play when a trader makes 2 or more consecutive profit there is this feeling that comes that gives us the mindset that we are invincible and nothing can harm us in the market so they increase the lot size to make all the profit possible.
Note that the market will always be there irrespective of the season or country you are in, I tell my friends that in forex trading, you trade for your account to survive for tomorrow, while you secure the money in your account you constantly make profit that’s how the big boys trade forex.
No Money Management
Remember when I said that I didn’t blow my account but was able to lose part of my initial deposit, this was because I applied money management in all my trades.
Money management is so important that most traders neglect it, money management keeps you in a trade for a lot longer time compare to someone who do not apply money management.
Before a trader should start to trade, there are some critical points that need to be taken into consideration. Such as:
- Amount of money one is comfortable to loose– Every trader should have a predefined amount of money to lose if a trade should go against them, this is extremely important because it also help increase the win-loss ratio.
- Lot size– using random lot size to trade is dangerous. Most people don’t care to know that this can ruin their account, imagine you trading with a lot size of 0.01 with a win-loss ratio of 1:2 and you made a profit and later increase it to 0.02 with the same ratio which resulted to a losing trade the amount of money one will lose might be greater than the profit made.
- Placement of stops- understands there are key levels in the market such as support and resistance. Stops should be trade a few pips above those areas.
In summary, traders also lose money without the proper knowledge; these people just play an assumption game on the market (blind trading). One needs to get the market insight and a fundamental knowledge of how the market works in general.
There is no harm in having a high expectation from the market, instead of it being “high”, it should be an expectation of what you need from market within a time frame such as how many percentage of profit one needs to make monthly or yearly from forex.
I came to understand that most market markers broker are honest and reliable than those who claim to be ECN, do not make the mistake of judging a broker based on the content on the website but instead on the experience of various traders and your own personal experience, they moment you discover a broker is a scammer please withdraw your profit and run off.
When starting to trade or when having a losing trade the desire to revenge trade is usually high remember that if you opt in and decide to revenge trade you might even lose more that you initially lost, have a trading plan and follow all the rules written down. Having a trading plan will help to reduce over trading and emotions.
Once in a while we become jealous of our friends when they show us their trading history, they might be earning quite a lot of money but look clearly at the drawdown, lot size and leverage of their account. Are they willing to sacrifice their entire account for just a few pips that should be the question every trader should be asking.
I would love to hear from you, do comment below to tell me how you feel about the reasons why forex traders blow their account and please do share with your friends and family also get our weekly market insight.