The Ten “Shall Not’s” of Forex Trading

Foreign currency exchange or forex for short has continuously attracted investors into its fold. The promise of making big money fast has always been its greatest come on. Unfortunately, for many who dipped their fingers into this highly volatile market, they are finding out too late that they are ill prepared for the foreign exchange market. Here are some tips on how best to get in to the rough and tumble world of foreign currency exchange. I call them the Ten “Shall Not’s” of Forex Trading.

1. Thou shall not trade forex unless you have a great appetite for taking risks. Traders need to understand the volatile nature of the foreign currency exchange market. They need to know that this market is capable of wiping out an account in one single move and if he is not ready for such, then he will be better off staying away from it.
2. Thou shall not deal with forex brokers who are not CFTC registered and cannot be held legally liable for their actions in the U.S. There are a lot of overseas as well as U.S. based online forex brokers which are not CFTC registered and therefore are unregulated. Dealing with them opens you to the risk of not having a legal recourse to run after them should they pull a fast one on you.
3. Thou shall not trade money you cannot afford to lose like retirement and educational fund and other monies which if lost, will drastically erode your current lifestyle. Never ever trade with ‘scared money’ or money you simply can’t afford to lose. This will reduce you to an emotional wreck making bad trades one after the other.
4. Thou shall not use computers without fail-proof internet security for online trading as they can easily be hacked and passwords and other important personal data can be stolen. Especially when dealing with foreign based online forex brokers, and especially if you use a mobile device to access your trading account, you need to have a hacker proof internet security in place.
5. Thou shall not trade without a well thought of trading plan complete with prudent money management strategies. A trading plan is your navigational map to help you find your way through the rough and tumble world of foreign currency exchange.
6. Thou shall not place orders without protective stops. Protective stops serve as your safety net that will prevent you from incurring losses more than you intended to lose. They will help your account to live through and trade another day.
7. Thou shall not trade with higher than 100:1 leverage. Leverage is where your greatest opportunity comes from but it is also where your greatest risks lie. The higher the leverage the bigger the risk becomes.
8. Thou shall not commit real money into forex trading unless you have already gained enough confidence and achieved satisfactory trading results using a demo account. Demo accounts are meant to give you a feel of the forex market and give you an idea of what it takes to trade physically and emotionally without risking real money. Take as long a time with a demo account as you want and trade only with a live account once you are convinced you already have the confidence to do it.
9. Thou shall not trade with complete disregard for underlying fundamentals and basing trades solely on technical studies. Never ever forget that technical studies and analyses do not actually move currencies though they may at times influence trading decisions. What actually move the market are the underlying fundamentals that may impact the supply and demand equation for each currency pair.
10. Thou shall not run after money already lost and pressure yourself into making a quick recovery. Traders smarting from recent trading losses jumped right back in into the market in the hope of recouping their losses fast. They allow their emotions to take over and as a result they end up making poor, hastily done trading decisions which further drive them down the quagmire of losing trades.