There is no holy grail in Forex trading, and no magical recipe to make money. The way to start Forex trading is straightforward. First thing first, find a good broker. The article dedicated to how to choose the right Forex broker here on our Forex Trading Academy shows the things to watch for, and offers a nice margin call di forex broker to finding the perfect broker.
The next thing to do is to open a demo account with that broker, and practise. Trading on a demo account is advised as it offers a glimpse of what the broker is doing with the spreads when the market is volatile, and how the overall execution and trading work with that broker. After trading for a while on a demo account, you should open a live account with the same broker, and then trading for real can start. It looks simple, but the steps above are not followed by many traders, even though they are three such simple things to do. The reason for that is human nature, as psychology plays an important role when trading financial markets. The desire to make a profit is so strong that the basic safety rules tend to be forgotten or ignored. The broker gives you a margin call!
The Inevitable Margin Call For every trade taken in a trading account, the broker blocks a corresponding margin needed to keep the trade floating. By the time the trade hits the stop loss or the take profit, or it is simply closed, the margin is released and the process starts all over again. If none of the steps above are followed, the broker will start automatically closing the trades, and if the market still goes against the open positions the trader will end up with the trading account being wiped out. This is what a margin call is, and what it does to a trading account.
The thing is that a margin call is really healthy from a psychological point of view as long as it does not happen often. Learning from Earlier Mistakes Receiving a margin call can be a great opportunity to ask the following question: Is trading suitable for me, or do I have what it takes to trade profitably? It is often only from this moment in time that trading is taken seriously, and that people will start investigating some more about what to do to trade profitably. There’s no shame in admitting defeat or failure, as long as one learns from it. This is why I mentioned at the start of the article that people fail to follow those three simple steps. Human nature is such that we rather learn from mistakes than follow a simple path to success. How to Avoid a Margin Call A simple answer to this question is to simply have a lot of funds in a trading account, and to constantly add more than the open positions.
Unfortunately, while this will certainly work, it is not usually realistic. The idea behind Forex trading and trading in general is to grow an account in such a way that in the end trading for a living becomes a reality. A sound money management plan is the cornerstone in avoiding a margin call. There are many money management techniques to be applied, and here on our Forex Trading Academy, we’re going to cover them later.