As a forex trader, you’re putting a lot on the line just to make some decent profits on your forex trading account. However, there are some common mistakes most traders make which make them face big losses in their forex trading careers.
What to Know About Your Forex Trading Account
While we could go on and on about all the things you need to know to prevent facing big losses, today we’re just going to be sharing some of the main things that you need to keep in mind.
High Volatility and Slippage
During the big important economic fundamental events such as the release of election results, GDP rate changes, financial budget of the country, and other news from the top central banks of the world, we can expect high volatility and slippage in most of the currency pairs. Please beware!
Don’t believe your STOP LOSS AND PENDING ORDERS!
Always keep the stop loss on your trades but never take high lot trades at this time. During these important news announcements, there will be a big jumping movement in the markets without moving the price continuously. Especially, you can expect a big slippage (gap) in the market.
Imbalance Gap between demand and supply in the forex market
During this time, Due to a lack of liquidity, the market will keep jumping from one price to another price instead of moving continuously. This makes the market not hit your stop loss or pending orders. Instead, your stop loss or pending orders will be executed at different prices.
If your stop-loss doesn’t execute on your given stop-loss price, you will lose more money than your stop-loss price.
Example: Let’s say you place a sell order on crude oil at the price of $37 with a stop loss at $40. If the market jumps immediately from $37 to $45 due to a lack of liquidity, you will lose 8$(45 – 37) instead of losing 3$ (your default stop loss). What this means is that wherever the market price landed after jumping will be your stop-loss price.
In the above example,
Entry = 37
Stop loss = 40
Take Profit = 30
Crude oil market price jumps from 37 to 45 (It did not hit your stop loss at $40. Instead, it jumped directly from 37 to 45). Result = 8$ lost (instead of my 3$ stop-loss price (37 – 40 = 3))
You lose more than your stop-loss price. You may feel worried and cheated due to this.
Pending Order Issues
This situation is similar to the stop loss example. If you place your pending order at 50, and if the market jumps from 48 to 60 within a fraction of seconds, your pending order may not be executed. Otherwise, it will be executed at the market landing price of 60 instead of your original pending order price of 50.
It sounds very bad, right?
This puts your trading account at high risk within a short time. Please don’t place any high lot pending orders during this time.
NOTE: Forex brokers don’t support you on this issue. Because it is normal to see this kind of volatility at this unusual time due to lack of liquidity.
The forex brokers and their liquidity providers don’t have control over it. This is the reason brokers reduce leverage on your trading accounts. So, you are not able to place high lots on your trading account. If you look at the history of retail forex trading, most forex brokers and banks go bankrupt during these crazy unusual movements in the market.
As a trader, you have to be aware of all those risks during major events like this.
Solutions for Your Forex Trading Account
It wouldn’t make sense for us to just tell you about the mistakes you would’ve been making on your forex trading account without also letting you know about the solutions. Here are our top tips for managing your forex trading account properly:
📍Don’t place high lots during this time.
📍Don’t place pending orders.
📍Don’t open too many trades.
📍Always use the stop loss.
📍Use Trailing Stop to chase the profits
Final Verdict
I hope you have learned something useful now to save your money!
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