Significance of Knowing When to Quit in currency exchange
As much as you have probably heard how lots of folk struck it big in the foreign exchange market, you’d also definitely have come across the numerous horror stories from those that lost a large amount of money very quickly.
Dependent on how doubtful you are you could either take these horror stories very seriously, or not seriously enough. Either way the fact of the affair is that many folks do finish up losing money in the forex for a particularly straightforward reason : they do not 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 want to invest in the forex market. That’s not a shabby amount, and you figure that if you pick the right investment, you could truly make a killing.
So you glance at the market, and feel that using your US$ 100,000 to buy Aus$, which is at present being sold at 1.4244 Aus$ per US$, would be an excellent idea since it appears to be pretty high and the Australian dollar will generally pick up shortly.
With that, you buy into that currency, and you now have Aus$ 142,440. Great!
Sadly, this is where things begin to go bad. Rather than the exchange rate improving, it actually does the opposite, and after 24 hours you find that it is now 1.4544 Aus$ per US$. At about that point, if you were to sell you’d finish up losing a ton.
instead of selling and finishing up losing, you decide to wait and hope that it improves. Come the next day though, you find that the exchange rate has fluctuated in the incorrect direction again, and is now 1.4554 Aus$ per US$.
At this time you figure that it is not going to get worse, and so you make a decision to hold for a while more. But what if it gets worse? What if it hits a record low and you are stuck with the prospect of losing over half your investment if you sell your Aus$? How long are you going to hold on to that currency though?
See, this is the problem with without knowing when to give up. Ideally, an experienced investor would have defined a stop order right at the start, doubtless 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 money, but it’s way better than losing more than you ever predicted.
unfortunately, many still finish up doing exactly what we just discussed 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 quit is certainly one characteristic that may serve you well.
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