In the complex world of investing, success is determined just as heavily by the power to minimise your losses as it is by the ability to maximise your profits. This is never truer than when it’s applied to the high-risk world of forex, where money is as easily lost as it is made.
Thankfully, it has very little to do with that fickle mistress known as luck. Minimising losses is an art form – one that every forex trader has the ability to learn. Here are three top tips to get you started…
Tip One: Choose a Suitable Broker
In the world of currency trading, there are three types of broker to choose from: execution-only, advisory and discretionary. These three offer various levels of advice and support to traders, which means that for the novice and the inexperienced, help is always at hand. Advisory stockbrokers are the ideal choice for those looking to learn as they trade, offering a guiding hand to steer your decisions. Discretionary brokers are an even better tool for minimising losses, as these experienced professionals will trade on your behalf, their sole focus being to protect your portfolio and maximise your profits.
Tip Two: Never Invest More Than 10 Per Cent
The right broker will go along way towards protecting you from poor decision-making, but for those who choose an advisory or execution-only service, the final choice will still rest in your hands. Some traders simply cannot be protected from their own folly, so it’s important to make sure that you don’t number among them. One of the easiest ways to achieve this is by placing limits on yourself. Always be aware that you can only lose as much as you invest: the loss of 10 per cent of your account total is recoverable; the loss of upwards of 50 per cent is not. Thus, the best way to minimise your losses is by laying a cap on them.
Tip Three: Learn from Your Mistakes
Our final tip is this: always be prepared to learn from your mistakes. Losing some money is inevitable, but as long as your account stays in the black overall, then the crisis has been averted. Even your losses have a silver lining, as they offer a prime learning opportunity. Take the time to study them in-depth, identifying exactly where things went wrong. If you know which actions to avoid in the future, you can do more of the acts that deliver a profit, and less of those that don’t.
Follow these three simple tips today to minimise your losses, and maximise your chances of forex success.