Managing Risk in FOREX Trading

Forex TraderThe difference between a successful investor and one who loses everything isn’t really defined by luck. On the contrary, the successful investor will approach each trade with the caution of the professional mountain climber, trying to predict each and every possible mishap and trying to take every step to avoid it. In Forex, this falls into three essential elements:

– Know your asset

– Know your limitations

– Set a win-to-loss ratio

1. Know your asset

Like the performer who makes tightrope walking seem easy, knowing what to invest in, when, and how much require hard work.
Before investing in an asset, research it. The same computer you place trades with can be used to search for information.

Google the asset, look for news items, try to gauge market sentiment, open some historical charts and check out how the asset has reacted in the past at various events.

Now come up to the present and compare the chart with the day’s news. Check if your asset is on a rise or fall and at what price you should open a position. Take a good look at the value fluctuations and set your stop loss and take profit points, then make your move.

2. Know your limitations

Leverage is a wonderful tool; without it, you probably wouldn’t be here. You’d never have been able to mobilize the cash necessary to make a noticeable profit from Forex in the first place, and on the other hand never invest more than you can afford to lose: never more than 2 to 5 percent of your equity.

Calculate your trading volume, taking into account the leverage, and the loss you could take at any point. Set both your lot size and stop-loss values in accordance.

Do it with a clear head and once your position is open, set the limits based on some monetary wind.

3. Set a win-to-loss ratio

The moment a position begins to lose, reevaluate your position, make sure you don’t lose more than you win. If the asset is losing money, don’t wait for miracles. It is always safer and smarter to invest with the market than against it. If investors decide to abandon a particular asset, you should too. You are not yet big enough to afford to play games now thinking of experienced speculators.

When you choose to trade Forex or other types of binary options, you must ensure the broker complies with your local laws and regulations. For example, if you live in Toronto or Quebec, you must ask “is binary options trading legal in Canada?

You also have to check for broker’s licenses and verify the authenticity of their website in terms of security and license accreditation by internationally recognized authorities such as CySEC. A fully licensed broker ensures that in case of nonpayment due to unexpected shutdown of the site or the company going bankrupt, the trader is likely to get their earnings.

In conclusion, Forex trading involves considerable risks and is therefore not appropriate for all investors. Traders should take into consideration the possibility of encountering substantial losses. It is, therefore, important to appreciate the possible consequences of investing. Traders should evaluate their earning potential against the risks involved and act appropriately.

If you have any questions, please ask below!