Forex risk management is an essential point on which the profitability of transactions largely depends. In fact, it can be said that any transaction in the foreign exchange market is fraught with great risks and does not guarantee a favourable outcome. But by applying risk control techniques, you can significantly increase the overall profitability of Forex transactions and minimise losses.
So how to manage risks?
We have prepared for you a few tips on how to manage your risks in order not to lose the deposit.
Analyze the market
Before opening a transaction, it is necessary to analyze the situation on the market. Analysis helps to see the full picture of the market. We advise you to carry out both fundamental and technical analysis which will give you all the necessary signals for a successful transaction.
Stick to your trading plan
Many traders, many trading plans. You can create a strategy from scratch; you can use the ready one and change it “for yourself” – the main thing is to follow the rules of this strategy. Using a specific trading algorithm and sticking to it, you can analyze your mistakes in order not to make them in the future. Your trading strategy should be profitable in the long run.
Set loss percentage
Define for yourself the percentage of losses that you can afford. For example, if during the day you have lost more than 3-5% of the deposit, stop trading and analyze what has gone wrong.
That is, open several different deals. To effectively manage your capital, we do not recommend using more than 1-5% of your deposit in one transaction. Do not forget that many pairs correlate with each other. Therefore it is necessary to open deals with currency pairs that are not related to each other.
Do not invest in trading all the money
Trading on the exchange is always a risk. Use for trading 7-10% of your capital. You will suffer such a loss almost painlessly. But if you trade on your las money or take it on credit, the consequences will be more tangible and unpleasant.
Use stop orders
The use of stop loss and take profit is the main way to minimise risks. If the levels are set correctly, you can achieve the fastest possible closing of the transaction at the initial stage of negative market movement.
Use leverage wisely
The size of the leverage affects the level of risk through the margin value, i.e. through the amount that will remain on your deposit after the Margin call and the forced Stop out. The more leverage, the lower the margin level and the more you can lose in case of an unfavourable outcome of the transaction. Besides, there is a psychological risk of overtrading with maximum volumes.
Admit a mistake
Everyone makes mistakes. If you make a mistake, admit it and fix the loss. Draw conclusions. Do not try to play over the market. If your loss grows and the price goes against you, close the deal.
Control your emotions
One of the most important risk management methods is to control your emotions. Greed and excitement are unacceptable. You need a clear-eyed calculation and awareness. Only in this way can you respond properly to changes in the market situation.
Do not trade if you have doubts
If you doubt whether to open a position, stay out of the market. If you are not sure that you have understood the signal correctly, do not trade. In trading, clarity and specifics are important. Then there will be a profit.
These simple but effective methods of risk management are relevant for Forex traders with different trading experience. Understanding risks, limiting them or reducing them in time, and quickly reacting to price changes are all that is needed for profitable trading. Also, apply this knowledge into practice on JustForex.com.