Although trading on platforms can be profitable, traders lose money too frequently, especially on forex sites and crypto exchanges. If you understand the reasons for the losses – and ways to avoid them – you’ll be able to minimize your capital losses and trade more intelligently.
Common reasons traders lose money
High leverage and poor risk management
Certain broker platforms will offer very high leverage, which can result in very large gains or losses. Novice traders frequently risk far too much of their equity on a trade and fail to apply money management rules such as a stop-loss order, which turns a small adverse move in the market into a much larger loss.
Unclear or unsafe broker choices
Some listings of option brokers or offshore forex investment sites have very poor oversight. Brokers and platforms with little to no transparency, very high fees, or slow withdrawal ability can make it difficult to recover your losses or may even hold your funds in custody and potentially never allow you to withdraw.
Emotional trading and overtrading
Fear and greed lead traders to increase position sizes, chase losses, or completely disregard the trade plans regarding opening/closing positions. Over time, this leads to increased losses.
Poor platform security and custody practices
Especially on crypto platforms, if the trader does not secure their private key, fails to apply two-factor authentication, or fails to withdraw assets to cold storage, their funds can be compromised. Even centralized exchanges are liable to hacks, insolvency, etc.
Misleading marketing and unrealistic promises
Aggressive advertising that promises guaranteed returns or an unexplained “secret” strategy is intended to entice traders into taking risks in products or with broker platforms that are unregulated in the margin.
Lack of knowledge about product mechanics
Both futures options traders and forex investors must sufficiently understand concepts such as margin, rollover, slippage, and how derivatives are utilized in volatile, generic forex and futures options trading. Inadequate understanding of these areas can lead to unintended losses.
How to stay protected?
Choose regulated, reputable platforms
When trading forex or using a trading platform, it is best to use brokers and cryptocurrency platforms that are regulated by a recognized ATG trading regulatory authority. Verify registration numbers, visit the ATG’s site, and confirm the corporate details of the broker platform.
Verify an option broker’s terms before funding.
Read the fee schedule, withdrawal terms and conditions, and the margin terms. Avoid broker platforms that hide costs or terms, making it difficult to withdraw your funds.
Use strict risk management
Never risk more than a small percentage of your account on a single trading position. Always have stop loss orders set, and position size utilizing your risk tolerance.
Start on demo accounts
Utilize the demo account to test your execution and strategies prior to using real capital. Most forex sites and broker platforms offer this service.
Enhance account security
Create unique passwords, activate two-step verification, and, for cryptocurrency, explore hardware wallets and secure custody solutions.
Review reputations carefully
Search reviews and tips from personal experience from long-term traders, while being aware of paid reviews and fake testimonials.
If things go wrong
If you feel that a broker platform is mismanaging your account or executing transactions that you are not directing, you should stop all trading immediately. Do your best to summarize all experiences, and keep notes using screenshots, emails, and transaction-related identification. Make sure you contact the support at the trading platform. If you feel any of your funds were taken wrongfully, consider seeking help from a fund recovery company.
To invest and trade in forex securely, you first have to manage risk, choose a reliable platform, and take security precautions. By taking these steps, you can reduce your risk of losing money and maintain control over your capital on cryptocurrency platforms, forex websites, and options broker marketplaces.
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