An online foreign currency trader exchanges foreign currency for currency from the buyer’s home country. Market fluctuations affect foreign currency exchange rates, determining profit and loss. As of 2015, 96 percent of new buyers suffer loss of their investment account, according to About.com.
New traders should follow certain steps when starting their investment portfolios. Following self-imposed rules, recording and adhering to transaction strategies and avoiding emotional trading helps the investor understand forex trading and have better success. Forex trading, contrary to the belief of some new investors, is not a scam. Practicing strategies using a forex trading demo prior to investing real money helps buyers understand the impact of their predictions before they run the risk of losing real money, advises About.com.
The primary reason investors fail at forex trading is leverage, which allows investing more money than available in the investment account. An investor using leverage can have $1000 in the investment account and leverage $2000 in the market. Most forex brokers offer up to a 50 to one leverage, tempting new investors to overextend themselves in the beginning. In an average investment day, the forex market experiences pip moves, currency price quotes that equal one thousandth of 1 percent. With leverage at 50 to 1, each pip move costs the investor about $5. At 70 to 100 pips, the same investor loses $350 a day, says About.com.