For A Beginner: How To Avoid Losing Money In Forex Trading – Lessons From Global Broker Octa

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The proliferation of digital trading platforms has enabled a leveling of the playing field, allowing more and more investors to trade foreign currency, digital tokens and alternative investments. But it comes with a risk. The road is paved with stories of novice investors who lost all their investment dollars trading the world's currencies.  As it stands, two out of three forex customers lose their money when trading currency.

But it doesn't have to be that way. Beginner traders can increase their odds of protecting their investments and limiting their risk by following the key tenets that Octa, the forex trading platform, says its successful traders possess. Much of this is centered on risk, whether volatility or leverage risk.

Take volatility, for starters. Exchange rates fluctuate based on a plethora of factors, from economic data to global news. It can happen quickly, requiring traders to be ready to enter and exit positions at the drop of a dime. Then there's leverage – trading with borrowed money – risk. With leverage, you can purchase assets at a fraction of what they cost. That provides greater opportunity but also much more risk. 

Slow And Steady 

To limit both risks, Octa says beginner traders should take it easy at the start and dip their toes into trading with small sums of money. One of the perks of being a trader is deciding how much money you want to allocate to your portfolio. Unlike businesses requiring startup capital that could be in the millions to get up and running, trading does not. By starting out small, you can learn and test the waters without worrying about losing it all. The better you become, the more money you can invest. 

To learn the ins and outs of forex trading in Singapore and South Asia with Octa, click here. 

Managing Risk 

Any trader with any experience knows all too well the “risk of ruin” concept. This is the likelihood that an individual will lose so much money through an investment or trade that there is no chance they can recover those losses or continue to trade. It’s something every trader, whether they are just starting out or have been at it for a while, wants to avoid. Everyone's risk tolerance varies, but for beginner traders, the smaller amounts of money you allocate to each trade, the lower the risk of ruin. 

Let's say you risked 50% of your account on a singular trade even if the strategy has 90% accuracy. If you continue to trade by risking 50% on every trade, you are guaranteed to lose all your money. The better strategy is to keep the risk between 0.5% and 2% of your investable assets and increase the risk as you get better, says Octa. The range depends on how often you trade, the accuracy of your model and multiple other variables. 

Beyond keeping your risk small, it’s important to take your time to understand how the forex market works, the different types of currencies you can trade and the geopolitical and economic events that could impact your trade. Try to keep emotions out of the equation and know when to cut your losses. Not every trade is going to be a winner but holding on too long can be financially ruinous. 

Adopting A Risk-First Approach 

Successful traders on the Octa platform tend to adopt a risk-first approach to each and every transaction. For good reason – if risk is always top of mind you won't have to worry about wiping out your account from one overzealous trade. To keep your head in the risk game, Octa says it’s a good idea in the beginning to set stop losses on every trade. A stop loss is a trading order you can use to close the trade if it goes south. With this type of order, you set the level at which you want the trade to close. That way you don't have to lose sleep worrying if your losses will continue to mount. Once it hits your breaking point, the trade will be closed. 

It’s also a good idea to avoid trades in the beginning where the price can change drastically within a short period of time. For example, it's probably best to wait until important announcements – like a change in the national interest rate – are made before taking a trade in currencies, as the volatility that arises from these events may make it impossible to manage risk if you are entering beforehand. 

Trading forex or any other investment requires traders to make educated bets. The more knowledge they have, the better those bets tend to become. When you're starting out you don't know what those educated bets are or even where to find them. That's why it's important to keep your trades small and your risks limited. It’s understandable to want to shoot for the stars out of the gate, but that sets you up for potential failure. Slow and steady tends to win the race, and that's particularly true when it comes to trading forex. 

Ready to get started forex trading and making profits while managing risk? Click here to learn more about Octa. 

Featured photo by m. on Unsplash

This post contains sponsored content. This content is for informational purposes only and is not intended to be investing advice.