Avoiding Forex Market Risks

Many of the trades which take place on the Forex market occur between large banks, central banks, multinational corporations, Governments, currency speculators as well as all other types of financial institutions and markets. In fact this is by far the largest trading market in the world for the value of the cash that passes from buyers and sellers of currencies. The Foreign Exchange or Forex market as it is more commonly known is purely to allow people to trade one currency for another.

This means the market mostly includes sophisticated traders who know what they are doing. However, the individual or retail traders make up only a small part of this market, and they often trade through a third party such as a Forex broker or a bank. Currently, the trades occurring in Forex markets across the globe is well more than $1.9 trillion each day on average.

In fact, when some individual investors begin trading in the Forex market it can all seem a bit daunting. The learning curve can be steep if you cannot master the fundamentals, and you can easily lose more money than you can afford if you are not careful. However, some people can learn fast and they can master the basics of the market quickly. If you are not one of the fast learners, you may have beginners luck and your first few trades can make you money. But you should not depend on luck to survive for more than your first few trades. You need a solid foundation to recoup your capital and make a decent income from your trades.

There are many financial instruments which you can use for trading on the currency market. These include forwards and futures, options and spread betting. All of which are similar to those used in equity markets. However, as these instruments maintain a minimum trade size to the base currencies, a margin is included with each trading account.

A terrorist attack such as that which occurred on 9/11 did not only affect the Forex market in the US but the world over. The market can change suddenly all because of decisions made by some government or corporation in a distant part of the world. So you must prepare for risks if you decide to trade on the Forex market. Sometimes the fall in a currency can be swift and can help to wipe out your entire account before you can react.

Values for individual currencies rise and fall with news and information happening around the world. Volatility is the essence of the currency market.

You will do do well by learning how to read graphs and charts about these individual currencies, Finally, sign up for a demo account with a broker and learn how to trade without using real money. Also, read press releases and other financial and political news from around the world. Therefore, if you want to become a successful investor in the Forex market, you must learn the fundamentals about the market and the currencies you wish to trade.

Forex Trading Psychology

First fatal psychological mistake.

In such situation, most Forex traders seem fearless, not fearing making losses and only worry that others are making profit and worrying that they must enter or lose money. As new financial data is published, most Forex traders will rush to be first to enter the market. Following blindly is the most Forex traders' fatal psychological weakness.

There are many Forex traders who watch the Forex chart closely, and will enter a market when the chart show a steep movement. They don't even take time to understand what are the forces causing movement. It may be too late when they finally realize that it is a false alarm because they are already in the losing position.

When it comes to trading, one of the most neglected important subjects are those dealing with trading psychology. Most traders spend lots of time trying to find that perfect system. But having a good operating system is just a small part of the game. It is very important to have a system that well suits the trader, but it is as important as having a money management plan, or to understand all the psychology barriers that will affect the trading decisions. In order to succeed in this business, there must be an equalness between all important aspects of trading.

When you lose a trade, what is the first thought that pops up in your mind? It would probably be, "There must be something wrong with my system", or "I knew it, I shouldn't have taken this trade".

FOREX trading is pure volatility and 80% of all trades do not last more than 2-3 days. Most of them become daytrades. It is easy to accept that conditions can and will change in a heartbeat, rendering most trade plans obsolete.

One principle is about cutting your losses at an early stage. Some traders want to believe that their losses might do well after a lenghty waiting time. More than likely the market moves against these non-profitable positions and make them lose hundred of points. Even if they rise again they will be unprofitable. Do not be caught up in the thought that every trade should be profitable. If you can profit from half the number of your trades you are on the right track. If you would like to get even and profit if only half of your trades are winners is to allow your winners to run and to minimize your losses.

Another principle is playing smart by not letting your emotions rule in trading. Be objective with your decisions. While in the market,be sensitive enough to see the factors that may have influenced the changes that worked against the original analysis you had worked out.

Expect the unexpected,both good and bad. Understand these happings, be prepared, and take the appropriate actions. A good psychology plan takes into consideration that you can not predict what is going to happen in the market.

Unless you're trading in short positions, only increase your position when prices goes up, not down. Generally, when a price starts to move it usually continues in that direction for a while.

How to Handle a Losing Streak:
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Plus, your trading account won't be drawn down so quickly.If you trade less you may discover why you are not successful. Follow those fewer trades more closely and document your success or failures more easily. If you are trading several currency markets and not having any success, cut back to trading one or two markets. Don't overtrade.

Research those programs and your money will probaly go further. There are many automatic Forex Trading Programs available.