Significance of Knowing When to Quit in currency exchange
Significance of Knowing When to Quit in currency exchange
As much as you have doubtless heard how a lot of folk struck it big in the forex market, you’d also positively have come across the varied horror stories from those who lost a lot of money very fast.
Depending on how doubtful you are , you may either take these horror stories seriously, or not seriously enough. Either way the fact of the situation is that many folk do finish up losing cash in the forex for a particularly easy reason : they don’t know when to give up.
To explain what we mean, let’s go over a fast example. Say you have US$ 100,000 that you would like to take a position in the forex market. That is not a shabby amount, and you figure that if you select the right investment, you might truly make money.
So you look at the market, and feel that using your US$ 100,000 to buy Aus$, which is currently being sold at 1.4244 Aus$ per US$, would be a good idea since it seems to be fairly high and the Australian dollar will generally pick up shortly.
With that, you buy into that currency, and you now have Aus$ 142,440. Great!
Unfortunately, this is where things start to go wrong. Rather than the exchange rate improving, it really does the opposite, and after 24 hours you find that it is now 1.4544 Aus$ per US$. At that point, if you were to sell you’d finish up losing a ton.
rather than selling and stopping up losing, you decide to wait and hope that it improves. Come the day after though, you find the exchange rate has fluctuated in the incorrect direction again, and is now 1.4554 Aus$ per US$.
At this time you figure that it does not go to get miles worse, and so you choose to hold for a while more. But what if it does get worse? What if it hits a record low and you are stuck with the possibility of losing over half your investment if you sell your Aus$? How long are you going to hold on to that currency though?
See, this is the issue with not knowing when to quit. Ideally, an experienced financier would have defined a stop order right at the start, probably for $1.4344 Aus$ per US$. That way, the minute the market started going the wrong way, you’d sell and be out of it.
Sure, you’d still lose some cash, but it’s miles better than losing more than you ever anticipated.
sadly, plenty still end up doing exactly what we just talked about in that example, and hold on for far too long, with far not enough reason to do so. End of the day, the choice is yours, but knowing when to give up is definitely one trait that will serve you well.
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