Significance of Knowing When to Quit in currency exchange

Significance of Knowing When to Quit in forex

As much as you’ve doubtless heard how a large amount of folks struck it enormous in the currency market, you’d also undoubtedly have come across the various horror stories from people who lost a ton of cash very fast.

Depending on how doubtful you are , you might either take these horror stories seriously, or not seriously enough. Either way the fact of the affair is that many people do end up losing cash in the foreign exchange for a very easy reason : they do not know when to quit.

To explain what we mean, let’s go over a quick example. Say you have US$ 100,000 that you want to invest in the foreign exchange market. That is not a shabby amount, and you figure that if you select the right investment, you might actually make a killing.

So you look at the market, and feel that using your US$ 100,000 to buy Aus$, which is presently being sold at 1.4244 Aus$ per US$, would be a brilliant idea since it looks to be fairly high and the Australian buck will most likely pick up shortly.

With that, you buy into that currency, and you currently have Aus$ 142,440. Great!

Sadly, this is where things start to go bad. Instead of the exchange rate improving, it essentially 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 end up losing a ton.

rather than selling and stopping up losing, you choose to wait and hope that it improves. Come the day after though, you find the exchange rate has fluctuated in the wrong direction again, and is now 1.4554 Aus$ per US$.

At this time you figure that it does not go to get far worse, and so you decide to hold for a bit more. But what if it does get worse? What if it hits a record low and you’re 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 without knowing when to give up. Ideally, a savvy financier would have outlined a stop order right at the start, potentially for $1.4344 Aus$ per US$. That way, the moment 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 much better than losing more than you ever predicted.

unfortunately, plenty still finish up doing precisely what we just talked about in that example, and hold on for far too long, with far too little reason to do so. End of the day, the choice is yours, but knowing when to give up is definitely one feature that will serve you well.

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