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Posted by Felix Okoli on Wednesday September 21, 2011 at 9:59:38:
I have written a couple of posts on forex trading in Nigeria but in this post, I want to focus on unfortunate experiences a lot of traders may have been facing in Nigeria. The big question here is "why are people constantly losing money to forex trading"?
If you have been trading forex for sometime and you really have been successful at it for say up to a year, having annual return above 50%, it probably means that you are a good forex trader and have the required knowledge. In my post on how to start trading forex, I mentioned adequate training as one of the key elements required and this simply means that if you didn't get the right training, you are already setting yourself up for a fall and how great that fall will be if you invested a huge amount of money.
Why Nigerians lose money to online forex trading
The main reason why I think many people lose money when it comes to forex trading is because they neglect one key element called "Adequate Training". Adequate training will inform you of things like:
- When to trade or not
- When to buy or sell
- How much risk to reward ratio to use
- Good money management by risking at most 2%
- Not using excessive leverage
- Effect of news reports
- How much to risk and importance of using stopsScenario of Nigerians overtrading their account
It's true that most forex brokers operating with Nigerians offer you leverage on your capital to the tune of 1:100 and this means that with $100, you can trade currencies worth $10,000. What they may not directly tell you is that you don't have to use 100% of that leverage. Leverage is the number one killer for most traders as they tend to overuse it.
Now assuming, you are a JJC forex trader and see this opportunity and after doing some calculations, you find out that with the 100% leverage, you can make $1 per pip for the EUR/USD. You then take that opportunity to trade and here are the results:
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Capital: $150
Leverage: 1;100
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1 WIN
Position: Long
Entry price: 1.4500
Exit price: 1.4550
Pips: 50
Stop loss: 50 pips
Units: 10,000
Profit: +$50Luckily, your stop loss doesn't hit but your target hits and you gain $50. Well good luck to you, but what happens if you lose and the trade goes against you?1 Loss
Position: Long
Entry price: 1.4500
Exit price: 1.4450
Pips: 50
Stop loss: 50 pips
Units: 10,000
Loss: - $50Now with this loss of $50, your capital has been depleted by 33% and 3 more losses will kick you back to level 0 and you have to start all over again.If you had received adequate training and discipline as a forex trader, common sense would tell you that you should never risk up to 30% of your trading capital in any position. In this position, your risk(stop loss value) was 33% and this is never a good strategy to trade forex for the long term and this setup is just for a single position. It would have been better to trade 20 positions in this case that will bring you $50 than trade one that will still bring you $50.Now assuming you really wanted to trade forex with $100 and still gain $50, then, here is a good strategy to do so.Capital: $100
Leverage: 1:100
Risk: 2% = $2
Target: $50 = $2*25
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Profit
Position: Long
Entry price: 1.4500
Exit price: 1.4550
Pips: 50
Stop loss: 50 pips
Units: 400
Profit: $2If you do this for 24 more trades, you will have gained an accumulated $50 and this is far better and safer than if you were hoping to get $50 from just one trade.However, if you really wanted to get $50 from a single position that closes in your favour, then here is a setup that can work for you but you will require more capitalTarget: $50 per trade
Required Capital: $25/2% = $1250 or more
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Profit
Position: Long
Entry price: 1.4500
Exit price: 1.4550
Stop loss price: 1.4475
Pips gained: 50
Stop loss: 25 pips
Profit: $50
if loss: $25
Units bought: 5000With the above setup, you can trade 50 times before needing to add new capital assuming all 50 trades go against you but that is highly unlikely since the learning curve works in a trader's favour as he gets more experienced.How to stop losing money to forex trading
- Go back to school. Learn more about forex rules
- Don't risk more than 2% of your capital in any position
- Avoid using 100% leverage
- Trade only when you are sure
- Change your current strategy since it seems not to be working
- Discipline yourself and stick to the rules
- Enter early and exit early
- Learn how to use some forex indicators and understand the newsIf you are still unable to make any profit from forex trading even after making a lot of changes, perhaps, you should just change your profession and divest your investments.If you've got any comments, share them here
Comments:
Re: Why many Nigerians lose money to Forex Trading
Re: Why many Nigerians lose money to Forex Trading
Re: Why many Nigerians lose money to Forex Trading
Re: Why many Nigerians lose money to Forex Trading
Re: Why many Nigerians lose money to Forex Trading
Re: Why many Nigerians lose money to Forex Trading
Re: Why many Nigerians lose money to Forex Trading
Well I've been using Marketiva for quite a while now and they are great. The software they use for trading is Streamster.
Re: Why many Nigerians lose money to Forex Trading Posted by tochukwu on Monday January 2, 2012 at 16:9:23: I want to change my broker because of their frequent requotes which have made me loose money. Pls can you recomend any good broker based on your experience with them.