A Beginners Guide To Trading Forex

What If You Lose A Forex Trade?

What If You Lose A Forex Trade?

If you know anything about stock trading, you will know that trading with borrowed capital on margins is extremely risky. With stocks, if the price drops beyond a certain point you can be committed to paying out more than was in your account. That is what is known as a margin call.

The advantage of the forex market in this respect is that its very high liquidity means that you can generally set a stop loss to prevent this happening. In very simple terms, this is because stocks have to find a buyer before they have any monetary value at all, while currencies are already money. What’s more, there is a much bigger turnover in the forex markets than on any national stock exchange.

Trillions of dollars worth of currencies change hands every day on the forex market. So it is much easier to find a buyer for a falling currency than it is for a falling stock.

Most forex trading accounts are managed on a principle that avoids almost all margin calls by placing an automatic stop on your trade if you lose the full amount of your account balance. This means that even if you do not place a stop loss yourself, your broker will automatically close the trade if you run out of funds, so that you will not owe more money than you had in the account.

This is comforting but you should not rely on it. You should always place your own stops to close a trade if the price goes against you, a long time before it wipes out your whole account! Always keep in mind that some trades are bound to lose.

Even the most successful trader meets with unexpected twists in the market, and even the most perfect technical predictions cannot cope with an unexpected natural, political or economic disaster. So you must use stops to protect your account against the possibility of large losses when (not if) you lose.

Above all, do not let losses divert you from your system. You must apply a profitable system consistently to make money with forex trading.

Never increase your position size to try to ‘recover’ your losses. They are part of the process. Record them and move on.

 

Next Page: Where To Place Stops In Forex

 

 

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