The Top 5 Reasons Forex Traders Blow Their Accounts (And How You Can Avoid It)

Let me put you in my mindset for this one. I have just watched a ‘trader reacts’ video, which showed a trader watching other traders blow their trading accounts. Whilst it's made for entertainment purposes, I was left feeling bad for the traders who have just lost money. 

Some of the practices these traders were doing, I could not believe. One guy loaded up 135 lots on a long NZDUSD trade ahead of the news. I mean…you’re asking for trouble. 

I wanted to discuss 5 reasons traders blow their trading accounts, and some solutions to do something different. 

1. Overleveraging

Now, I myself am no stranger to this. I once tried to hedge a USDJPY trade 5 minutes before NFP. As you can imagine, it did not end well. Opening a position size too big is never usually a good thing. This could be down to not understanding leverage or not understanding how to calculate risk size. Especially as a new trader that is convinced that a move is coming or a market should react in a particular way. The markets are random. 

If you struggle with overleveraging, understand the beast. 

Most forex brokers will offer you anywhere between 1:30 and 1:1000. The higher the leverage the more capital in theory you trade with. 

If you have a $1000 account with a 1:30 leverage, you are trading with a $30,000 account on leverage. 

If you have a $1000 account with a 1:500 leverage, you are trading with a $500,000 account on leverage.

Higher leverage, more to lose. 

As a beginner trader I do believe it’s in your best interest to start with a lower leverage. Just because higher leverage is available doesn’t mean you have to use it. 

2. Lack of risk management

There's three points within this where I feel traders go wrong, the first is the lack of stop losses. You’d be surprised how many traders don’t use stops as they believe they are being targeted. The second is risking too much, and the third they hold on to losers. 

The industry standard is to risk 1-2% per trade, but honestly that shouldn’t be the case. You should base risk on what your data tells you. For me, I know I can get 3-6 trade opportunities a week, if I were to risk 1% on each of those and they lose I could be down 6% in a week. That’s not fun. I tend to work on 0.5% a majority of the time.

I also cut a losing trade early if the price or narrative begins to shift. Let’s say the market is in an upward trend and I am long, if the trend turns lower I get out. Simple. This one change saved me so much capital in the past. 

3. No trading plan

So many traders watch a YouTube video about a trading strategy, see the best case scenarios and begin to trade it, only to fail and then repeat the process. They also tend to enter on ‘gut feeling’. Without a tested trading strategy, consistently profitable trading is almost impossible.

To overcome this is fairly simple. Develop a trading plan that includes entries, exits, risk management. Backtest is, forward test it, put in the work. If you can’t follow your plan consistently, you don’t have one.

4. Trading is emotional

Whether we like it or not, trading capital will always have an emotion attached to it. We know it can be useful in so many ways, so losing it can be painful. Traders go through all the emotions when trading, emotions like fear, greed, confidence or frustration. 

Again, trying to trade with data in mind and reviewing trades, being self critical, understanding your weak points will all help in overcoming those strong emotions. 

5. High expectations

Forex or trading educators have given traders a false sense of what trading is and what you can achieve. Marketing of money, cars, luxury lifestyles and more have poisoned the minds of people trying to break into the industry. This has created pressure within traders which leads to them making unfavourable decisions. 

This one is harder to get over. You have to adjust your mindset to think about growth on a weekly, monthly and quarterly basis. Focus on the data, focus on reviewing traders. This will help you in the long run. 

Always remember to trade smart. 

If any of these points relate to you and your journey, be aware you are not alone. Many traders go through similar scenarios. For me small consistent changes helped guide me in the right direction. I was also very fortunate to have mentors to lean on when times were tough. 

Anyway, I wish you well on your trading journey and speak soon.