Fear: When working with a live account, the fear of hitting the stop loss may cause the trader to ignore money management and commit to a deep stop loss that risks to much money. Some even skip putting a stop loss!
Greed: Also the greed when seeing (or imagining) a lucrative trade can make the trader enlarge the trade, without squeezing the stop loss, in a way that will break the money management rules.
The psychological difference between a forex isn’t significant, since money management is done when the trader is on the sidelines – doesn’t have an open position. When being out of the market, the state of the account is clear, and the trader can easily match the upcoming trade to the money management rules.
In short, money management is controlling how much of your account you want to risk at a single trade. There’s lots of material on the web about how to manage money in forex. There are various methods. I’m not going to get into the various ways of money management, but I’ll just say that it’s important to learn the issue, and adopt a set of rules to do it.
This side of forex trading is often neglected by traders. When they approach making a new deal, they tend to look at the number of pips that they risk, and not at the relational part of their account which they can lose.
Smart traders risk only 1% of their original account each time. This way, a serious of losses will not result in the liquidation of the account.
I’ve already dealt with aspects of psychological pressure when using a forex demo account. When making the technical analysis and when examining money management, the trader isn’t in the market. Therefore, the psychological difference between a real, live account and a demo account is rather small. When you’re out of the market, it’s harder for emotions to take over.
Hard to simulate emotions
When you have an open trade, it’s a totally different game. The money is moving every second: suddenly you earn a lot of money, and you want to get out quickly. Or you might become greedy and want more than the original plan.
When the trade goes against you, you fear that your stop loss wasn’t deep enough, and you might lower it, or you regret your trade and want to cut the loss at a very early stage.
If you’re a seasoned forex trader, you’re probably trying out the new broker with a demo account. Also for you, it’s important to learn the software, get acquainted with it and especially get to “feel” the broker.
In an industry that has more than bucket shop and some indecent people, feeling comfortable with the broker is essential before depositing money into a real account. But since you already have plenty of trading experience, this process should take no more than one week. Some will settle for one day.
If you’re not a newbie, but this is only the second forex broker you’re with, a little more time might be necessary. You can easily fill in two weeks with getting used to the software. Since you’re used to only one broker, moving to a second one might feel like a big change.
The forex market is growing rapidly in the last few years. More people are trading currencies. This is especially felt in the current global crisis, when many people were disappointed and disillusioned from the stock market.
Together with the popularity of forex trading, there is growing number of forex brokers. Some have commissions, and some don’t. Some have tighter spreads and some have larger spreads. Some have a better platform and some don’t. Some have a high entry rate and some don’t.
All are acceptable.