Why traders lose their deposits on financial markets
Many traders end up losing money on the forex market. Why is that? Let's take a look at the reasons behind this widespread phenomenon.
- Having dealt with hundreds of clients, I have come to the conclusion that the primary risk factor that leads to trading losses on the forex market is not so much the absence of a good trading strategy as a lack of discipline. The desire to make money quickly and approach the forex market as if it were a casino cause trading losses.
- If you have acquired a trading strategy but have not mastered it completely, you are unlikely to find the strategy particularly effective. You have to understand the rules of the trading strategy you're using; that is the only way to get the most out of any trading strategy. There are two options: you can explore the strategy in greater detail, reading articles about it, perhaps more than once; or you can switch to another trading strategy that is easier to understand.
- Limited knowledge is another reason why traders lose their initial investments. Novice traders are often unwilling to devote themselves to studying the market, believing that it will be sufficient to understand the basics of one trading strategy or another, and rarely advancing beyond this stage. It pays to be more diligent. We have a lot of information on our blog, and it will be worthwhile to spend an extra week or two to master the intricacies and nuances of the forex market before starting to trade. This will increase your chances of being successful. It is a truism that knowledge is power; when it comes to financial markets, knowledge translates into money. You will find additional information in the Free Forex section.
- A lack of motivation can also contribute to trading losses. Only a motivated trader who has the necessary confidence as well as the ambition to make money and be profitable will succeed. Traders who choose to merely dabble in financial markets should not count on becoming wealthy, because they are not willing to dedicate themselves entirely to wealth accumulation; in fact, they are far more likely to lose money. If you want to succeed, cultivate the motivation that will help you join the thousands of people who have become affluent due to their activities on financial markets.
- A high-speed Internet connection is of paramount importance when it comes to trading. As I have written countless of times, it is vital to have a VPS for high-speed trading that is located in the same data center as your broker. Many clients have written to me to say they would first make money using a cheap VPS and buy a more sophisticated one later. This is not the best approach.
- Inexperienced traders often choose the wrong broker who will prevent the trader from making money. They often select their brokers based on reasons that have, at best, limited relevance to their ability to make money with that broker. For example, they might choose a broker because that broker happens to have an office in the trader's city or the broker's customer support responds quickly. This is neither here nor there. When it comes to choosing the right broker, the most important criteria center on the broker's ability to provide the required environment for the trading strategy used by the trader.
The above, then, are the culprits that are often found behind a trader's losses on the forex market. These are not egregious errors (nothing like trading without a strategy, for example), and they might not necessarily lead to large losses, but they are frequently the reasons why money is lost. In some situations, the presence of even one of the above risk factors is enough to make you lose money. That alone should deter you from making these mistakes if you're serious about becoming successful on the forex market.
What do you do when you lose your initial investment?
You can turn your losses into an advantage. In all likelihood, seeing that you have been losing money, your broker will conclude that you are an inexperienced trader and move your account to the B-book. In practice, this means that your broker will cease to monitor your trading activity as zealously as in the past. At this point, you'd be well advised to rent your VPS in the same data center as your broker, install Latency Arbitrage and wait for your first order. Evaluate the speed of the execution of the order by consulting the arbitrage advisor's logs. We have provided information about how to do that in one of our articles.
If the execution speed does not exceed 160 ms, there's a good chance that you can make money even in the B-book. Particularly good results can be obtained by trading nonfarm payrolls. Choose currency pairs with high volatility such as GBPUSD, USDJPY, EURUSD and USDCAD; it is also recommended that you choose DAX. Set your money management to 20% of the deposit, but be sure to monitor your trading. Stay on top of execution times and slippage. If execution times or slippage increase, cease all trading. Your goal is to recoup your original deposit. Once that's done, you start from scratch. At this point, however, you should use Locking arbitrage; fixed lots should be pegged at 4-6% of the deposit size. After two or three weeks of trading, you can install Latency Arbitrage in your account in order to increase your profits.
Our offer: Locking Arbitrage + Latency Arbitrage
Most important – don't give up!
I can't emphasize that enough. The road to success is an arduous one; you're bound to encounter setbacks. However, as long as you commit to the road taken, you have a good chance of becoming successful and attaining your goals. I trust that the above will help you along the way. Good luck in your trading!