There is one major reason why many forex traders can never make it big or become rich while doing this business. Rather than becoming rich, they will continue to lose their money. Let us look at what usually happens to prospective traders.
At the onset a new trader is usually bubbling with great enthusiasm. He puts all his mind and energy into the training. He takes his demo trading very serious and while practicing and learning, believes that everything will be fine. He gets so confident after sometime believing that he has mastered every trick that can ever exist in forex trading. Then he decides to take a dive into live trading.
As a precaution, he will prefer to taste the waters first. He therefore decides to look for forex brokers whose platform allows micro trading or mini trading. These are brokers who tell you that you can start trading with two hundred or three hundred dollars. In fact, some brokers tell you that you can even start with as little as fifty dollars. You decide to gather your fund ready to start.
Many traders do not take time to read the warning that many forex brokers display on their websites. This warning makes you to understand that trading forex is risky because you have no control over the price fluctuation. They protect themselves from your losses. They tell you not to use money you cannot afford to lose while trading. They know that your investment capital is too small to trade forex and price fluctuations and draw down will soon overtake your margin.
Many traders also do not know that if you wish to trade live with two hundred or three hundred dollars, you must as a matter of precaution trade with 0.01 and not 0.1 lot. By so doing, you will only trade with as little as ten percent of your deposit. This will protect you from the vagaries of drawdown during active trading times when the trade runs in the negative direction.
Unfortunately, many forex brokers set 0.1 lots as their minimum which implies that you will be taking a higher risk if you lose just as you will be making a big profit if trade goes in your favor. This risk is even higher during the period when we have low trading volume. Then when we take the broker’s spread into consideration, the overall risk becomes enormous.
As a matter of fact, many traders may know all these things but they easily forget to stick to the rule while trading because the brokers will not remind you the implication of using 0.1 and higher lots while trading with two or three hundred dollars. To make matters worse, there is no provision for you to adjust the lot downwards on their live platforms. Only very few platforms make provision for it. Metatrader [MT4] platforms have this adjustment in demo trading charts only but not in live charts.
Finding Solution to This Problem
The solution to this problem lies in good fund management strategy. To solve this problem, we must tell ourselves the following truths about forex trading;
1. If you wish to start trading live with two or three hundred dollars, find forex brokers whose platforms make provision for adjusting your lot downwards to 0.01 lots on their live chart.
2. If you insist on trading live on MT4 platform, you need nothing less than seven hundred and fifty dollars. It is best to start with one thousand dollars as this will safeguard your fund during drawdown at 0.1 lots.
3. If you do not have this amount of money to trade, you can open a live account while beginning your demo trading and begin to save your money in installments in your non-trading or transitory account so that when you are ready to go live, you would have saved up to a thousand dollars.
4. Remember the warning that says you must not use the money you cannot afford to lose to trade forex. Take that message serious and have it at the back of your mind while you plan to trade forex. Think about these suggestions and see how they can help to protect your fund. This is to your success in forex trading