We recently published an article about the advantages of Forex trading for retail traders and investors.
While Forex trading offers many opportunities for everyone to earn an additional income and to generate profits, there are also some challenges on the way to the top that most traders will need to handle.
In this article, we’ll discuss some of the most important challenges and some ways to handle them in the right way.
The odds are stacked in favor of the big sharks - Consistent success is not always easy
Making 1 winning trade is not being a successful trader. Without consistency, success cannot be achieved in trading. Therefore, it’s obvious why trading success is not to be easily achieved.
The rookie Forex trader is at the biggest risk of losing a lot of money. Initially, Forex trading may seem easy, especially in a case of beginner's luck which can erroneously lead the new trader to believe that he has already mastered the art of trading.
Scammers of all sorts are present everywhere on the Forex scene. A trader must be careful not just with the broker he chooses, but also the signal providers, trading systems and gurus/experts he is following.
In foreign exchange, the big players have all the advantages. The retail trader has limited access to information and knowledge and has no power in the market. Playing against the small investor is even legal to a certain degree in foreign exchange because it’s an over the counter market and it’s not tightly regulated.
Thus, in a way Forex is a game for the big sharks and this is why it’s key for small retail traders to be primarily focused on protecting their capital.
High risk is involved
The risk of losing your entire investment or even more is real. Even if you take all the precautious measures like always using a stop loss and keeping your leverage low, there is still a potential possibility of huge losses to occur.
Although that is very rare and nearly impossible when using the appropriate risk measures, theoretically at least, it can happen and that is something every Forex trader needs to be aware of.
Just because a 1000 pips move didn’t occur in the last 2, 5 or 10 years doesn’t mean it cannot happen anytime. If in doubt, just remember the SNB’s decision to remove the peg on the Swiss Franc in 2015 or the Brexit referendum vote in 2016 and the market reaction to those events.
Forex trading can be mentally exhausting
Trading Forex can be hectic at times and this can be difficult for some people to manage, at least when starting out.
Forex is a 24-hour market and as much as this is an advantage it can also be challenging to keep up with all the information that is published and the price fluctuations that occur around the day.
Positions going against the trader and losses are a normal part of the Forex trading business. However, some may find this difficult to cope with and thus it can cause mental stress and potentially other problems for the trader.
Fear can overwhelm traders in such a situation if they are not well prepared psychologically. Working on your trading psychology can help to deal with the challenges in Forex trading in an appropriate and profitable manner.