3 Reasons Why Traders Lose

The main preoccupation of people interested in Forex market is to find out why the major part of traders ultimately loses money. The research normally shows that each month only 20-30 percent of retail traders gain profit. But what is the reason that retail traders end up losing money? A number of attempts are made to find the exact answer of this question and here we’ll discuss the most obvious reasons.

1. Excessive Leverage

In Forex or CFD trading different brokerage companies offer their clients certain amount of leverage. The higher is the extent of leverage the more profit traders are inclined to get. For instance, if a trader is offered a leverage by 500:1 ratio he has a chance to start trade let’s say by depositing 5$ and take a position worth $2,500. This attracts most traders and even those with limited funds at their disposal.

Now what is dangerous here? Together with the increase of profit the risk of sustaining losses also increases. Do you imagine the situation when the market may move against you? Unfortunately, not all the traders are found to be careful and most of them think by only gaining as much as possible. However if each trader accepts and uses the leverage of 100:1, even in case of unsuccessful trade the loss wouldn’t be so high. Do not use excessive leverage in order to trade huge positions; this is the number one reason why traders fail.

2. Lack of Deep Knowledge and Experience

The failure in any sphere firstly comes from unawareness and surface knowledge. Listening to how others have reached success and being attracted by their experience is not enough to gain achievements. It seems to most people that Forex trading is the most efficient way to get rich quickly as they have heard of the impressive returns made by trading. They think that knowing all that is quite enough to start trading and instead of scrutinizing the market first they open real account. Never rush into trading immediately unless you have learnt what Forex is and got experience on demo account. Nowadays you can find hundreds of Forex e-books or other Internet resources where you can learn trading and find answers to all your questions.

3. Forex Trading is Complicated

Forex market is actually very complicated to understand completely. Moreover, as statistics has shown it is tougher than other forms of trading. This suggests that not many people can succeed in financial markets. If you are not sure whether trading is for you or you have some questions you had better apply for independent advice.

Conclusion

The only way of reaching perfection is learning and deeply understanding of what you do. Be well informed and the success is yours.