There are millions of traders out there, but the vast majority of them fail.
Many traders fail due to the use of vast amounts of leverage and unrealistic expectations. They swing for the fences, not allowing themselves to make numerous low-risk mistakes. Overconfidence and lack of risk management can wipe out an account rather quickly. However, there are many ways to lose at this game of trading, and below are a few more common ways traders lose money.
You might be wondering why this is relevant to your brokerage. All will be revealed later on in the article.
A new trader will deposit their money in their account and just gamble with it. They go long, and they go short with no real logic applied to their trading. The lure of fast money is far too strong, so they are tempted to guess. After all, isn’t it a 50% chance that the price will go up or down?
Well, that may be true, but traders get themselves into trouble because they neglect to place stops, they have no profit targets, and they trade for too frequently. New traders tend to self-destruct very quickly, and by the end of the day, they’ve either given back what they have won or lost their money altogether.
No risk management
In other words, a new trader will start trading with no concept of how much they can lose. They tend to risk an arbitrary dollar amount rather than a percentage of the account, which has been worked out and deemed safe. (For professional day traders, this number is usually 1%) Correct and proper risk management means you can have a string of losses and still live to fight another day.
Trading too much
Often, new traders will assess the charts and spot opportunities everywhere. That leads to a style of trading that resembles something like shooting from the hip. Without an edge and a proper strategy, they are likely to lose overall. Of course, some traders will be big winners, and people do get lucky from time to time, but in the long run, it is not sustainable.
Rushing into it
The forex market is exciting and exhilarating, and the boundaries are pretty low to get started. Often this leads to newbie traders jumping in headfirst without any proper education or incorrect tools.
Brokerages need traders to succeed
Bad traders are bad for your brokerage startups, full stop.
It is no secret that for a forex brokerage to succeed, it needs order flow. Traders that come and blow their accounts in a matter of weeks are not useful to a forex business. A winning strategy for any brokerage should be to provide traders with the correct forex white label software and proper education to empower its clients to trade successfully and frequently. It costs a lot of money to acquire new customers, and therefore a brokerage needs to do everything in its power to hold on to them. For as long as that trader is trading with your brokerage, the more revenue your brokerage earns.