With an abundance of software tools and online platforms designed to simplify Forex trading, one might assume that most traders eventually see some level of success. Considering the fact that markets can only move in two directions (up or down), it would seem that there’s a 50% chance of winning in any individual trade. In reality, if you make the wrong trade at the wrong time, you’ll face a 100% certainty of losing money from that mistake. As such, it’s clear that Forex traders hold their own financial fate in their hands with each trading decision they make. With that said, here are some of the most common mistakes that cause forex traders to fail.

1. Not Using a Broker

Forex trading without an online broker is like asking for a hard time. Most forex traders do use a broker. Still, it’s worth noting that opting for the independent route from the beginning is an uncommon yet sure-fire mistake. Brokerage platforms provide easy access to forex markets and all of the charts, graphs, and resources you’ll need in order to make fully informed trades. While some expert traders might be able to get by just fine without a broker, choosing the right brokerage is an essential step for every novice trader.

2. Overtrading

The taste of success can have you craving more and discarding the limits that you had previously set. Making excessively large trades or trading too often is one way to set yourself up for disaster because eventually you’ll take a huge loss on a single trade or have a very bad day overall. Trading is mostly a skill-based activity, but the volatility and unpredictability of the financial markets mean that there’s always a chance of failure. As such, it’s important to avoid overtrading as part of an overall risk management strategy.

3. Not Having a Plan or Strategy

Every successful forex trader has their own market ideologies, trading strategies, preferred trading times, and favorite analysis tools. Taking a guided and predetermined approach will ensure that you’re not frivolously jumping from one trade to the next with no sense of direction. This is important because it gives you a backup plan or exit strategy in case a series of trades don’t go as planned. Creating a solid forex trading strategy will help you clearly define the risks you’re taking and establish predefined exit triggers – signs that let you know when to stop trading for the day.

Not Understanding Risk Management

Having a thorough grasp on risk management might not guarantee your success in every scenario, but it will at least give you the ability to mitigate and minimize your losses. Poor risk management sustained over a long period of time will inevitably lead to excessive losses, while proper risk management ensures at least some level of continuity and security. Studying risk management will help any kind of trader or investor because it keeps you from overstepping your financial boundaries. That way, if you do wind up failing, you’ll still have enough in the reserve to trade another day.