The foreign exchange market can definitely be an extremely profitable trading ground but it can also be a risky one. Many people are tempted into FX market with promises of high earnings and a great life, but in reality many traders lose their entire account before they start profiting, if they ever start profiting. These traders are not bad, they are just doing a fatal mistake that eliminates accounts of many beginners in the forex market.

One fatal mistake is undercapitalizing. Forex brokers allow traders to open accounts with as little as $50 and use this as a way to attract them. However, being undercapitalized means you will earn very small amounts from each trade or you will be left to the mercy of leverage and exchange rate moves, a very unpleasant situation.

Leverage is another account killer, perhaps the second biggest one. On the foreign exchange market, you can open trades bigger than your current balance. This action is called leveraging your capital. However, excessive leverage kills accounts very quickly. In a leverage of 100:1, which means your trade is a hundred times bigger than your capital, a move of 1% against you will erase your entire account. Expert traders use a small leverage, about 3:1, which allows them to have more "breathing room" in case a position goes against them. Don't be tempted by Forex brokers offering 500:1 leverage, you will lose your account faster than you can place an order.

Spreads and commissions are total killers when it comes to erasing accounts. The spread is the difference between the buying price and the selling price of a currency at a given moment. When the spread is low, about 2 - 3 pips, it does not really matter, as it is the norm for most brokers. However, combining a high spread with high leverage means you will lose a high percentage of your trade even before the exchange rate moves.

The main reason for failure of new traders is not having a plan. Currency trading is a business, and as such it should have a clear, definite plan. Trading randomly can ruin an account very quickly, yet many traders think they can outsmart the market and trade by themselves with no experience. The best way to start your trading career is getting a Forex expert advisor. This way you will gain experience and make money on the way, skipping all the fatal mistakes.

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