- Everyone is looking for a fast way to make money and Forex trading provides this opportunity if done carefully, of course.
- Forex trading comes with risks and without proper research and evaluation, instead of gaining, you might lose.
- Never trading more than you can afford to lose and starting small are only a couple of possible risks you can encounter on your way.
One of the most highly paid but risky sectors that anyone could engage in is Forex trading. New traders are always advised to go slow because they tend to make massive losses that can be almost impossible to recover from. The Forex system can be said to be somewhat rigged to advocate for risky behaviour and you need to protect yourself. Below are three strategies Forex traders could use to manage risk.
1. Never Trade More Than You Are Ready To Lose
This should be a golden rule to all forex traders because trading more money that you can't afford to lose will affect your trading performance. Forex trading can be risky; it can go either positively or negatively. You can never be too sure whether a trade will go as you expect it to and there are always surprises.
When you learn to trade, you will realise that it is never a wise move to trade above your means.
The fear of losing will compromise your decision making and you will make mistakes in the future due to this.
2. Start With Small Trade Sizes
Ensure that you always make your trades according to the amount of money you have in your account. In Forex, you trade according to what is referred to as lot sizes and a big size means that you are risking more to get more, but this is not usually a safe move.
The secret to Forex trading can be summed up as keeping your risks as low as possible. Always ensure that you do adequate research before you decide to trade in a particular market. You need to give solid reasons why you believe that a specific trade will swing your way. If the trade goes even a little bit in the opposite direction than what you expected, then you will lose everything almost instantly. Most experienced Forex traders will tell you that:
It is better to make small, steady percentages than large, risky percentages.
If you don’t know how much you should invest in trades, a common rule of thumb is to never spend more than one or two percent of your bankroll. This will allow you to enter trades with confidence knowing that you can afford to lose the trade comfortably.
3. Always Use Stop Losses Appropriately
A stop loss can be described merely as a mechanism that stops your account from making any further losses. As mentioned earlier on, trades don't always go in the expected direction and you should be ready for the worst. You need to set up the stop loss at a point that you know if reached, then you made a huge mistake. Do not set your stop loss too close to where you entered the trade because some trades swing a little bit in the opposite direction before skyrocketing in your favour.
Conclusion
Most traders survive the first couple of trades through luck, but after a while, everything goes south, and they are left with empty accounts. Forex trading can be your ticket to making lots of money, but you need to approach it with caution and only take low risks.
Do you have other recommendations that come in handy during Forex trading?
Boris Dzhingarov graduated University of National and World Economy with major marketing. He writes for several sites online such as Semrush, Tweakyourbiz and Socialnomics.net. Boris is the founder of Tech Surprise and MonetaryLibrary.
Maria Harutyunyan, Cofounder at Loopex Digital
Forex trading can be a lucrative side hustle if you have the right risk management strategies. Here are several more tips to lessen the risk. The first obvious one is you need to follow the news and trends. Don’t be ignorant. You need to keep abreast of news involving fundamentals such as interest rate movements, unemployment, GDP and CPI on the currency you are trading on as well as big news such as the trade relations, US-China trade war, and Brexit. They give insight into future movements and traders’ reactions.
Next is you need to find a strategy that works and stick to it, whether you are trading daily, weekly or yearly. Don’t be swayed by hearsays. It takes patience and discipline. You need to learn to control your emotions and learn to think rationally to minimise losses.
Another forex risk management strategy is not to put all your eggs in one basket. This rule applies to all your financial investments, not just forex trading. Spread your trade to ensure you won’t lose everything. Hedging forex is also another alternative and you should read up about it. Your gains won’t be as big but at least you won’t risk losing all of it.