According to one statistic, 90 percent of beginning Forex traders lose their initial deposit within their trading accounts. The same survey concluded that as few as 5 percent of all traders go on to be successful Forex traders over the long term. Why does this happen?
For one, many people jump into Forex trading without opening a demo account or using Forex Arbitrage. Paper trading is a vital instrument for beginners to use. Rather than risking real money, you are given an amount of play money by a broker and you can use it to make trades with and refine a Forex trading strategy. This is done for a reason. People with paper trading experience will have better knowledge of the software necessary for trading. Also, these people will have more experience monitoring market conditions and will be better prepared to handle changes within the market as they occur.
A secondary reason why many beginning traders fail is because of the misuse of leverage. Many brokerage sites offer 100, 200, or even 400 times the amount of your trading capital in leverage. Where many people see big profits, just as many (or more) experience even bigger losses. When you lose money traded with leverage, you are still responsible for that amount. This can equal catastrophic losses for those trading outside of their comfort zone. For beginners, it is especially important that you stay away from excessive leverage situations. Trade with the money you have and grow it naturally. This will teach you discipline in a way that leverage cannot teach.