USING TOO MUCH LEVERAGE. A COMMON MISTAKE BY FOREX TRADERS

15‏/11‏/2009

Forex trading is among the most lucrative industries that independent individuals can participate in. Beginners, though, are susceptible to making mistakes that may result in the depletion or total loss of their investment.

One of the strong suits of currency trading is that it allows traders to use leverage or to trade on margin. This means that they can buy or sell currencies despite a small account balance. Novice traders at times take advantage of this opportunity and decide to use too much leverage on a large trade. Such a move is highly risky since if the market shifts the opposite direction from what is expected, the trader may suffer greater losses.

Over trading is another tendency that beginners and experts in forex trading alike should avoid. Newbies often easily get excited by observed market movements and trade by impulse, expecting drastic shifts that fail to materialize. To some extremes, they engage in multiple trades at once simply
because they wish to. Frequent trading in the absence of real earning opportunities may as well lead to loss.

In an effort to maximize their profit, a lot of new traders also speculate the point at which the chosen currency pair will turn around. Referred to as "tops" and "bottoms", these points are difficult to determine even for veteran traders. At times, it is more advisable to trade when a gradual, but
constant movement is observed that yields less but more definite earning.

Forex trading firms today utilize their own platform that allows novices to trade in simulation mode. With enough practice, there are fewer chances that traders would make these mistakes and increased likelihood of earning high in this profitable business.