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Common Tips to Reduce Forex Risks

Each trader knows about the risks on Forex. But anyway, everyone wants to trade! What pushes the person on the way of currency trading? The desire to earn money with his own mind, and of course to create a new source of the income. If the trader wants to get stable profit for his own intellectual efforts steadily, he should pay the very special attention to the Forex risk reduction.

forex risk

Major types of Forex risks

Conditionally they can be divided on trading and non-trading (synonyms – market and non-market).

  1. Risks of currency rates change
  2. Risks of a leverage
  3. Technical risks
  4. Risks involved with the broker's choice
  5. Risks considering the panic in the market

Non-trading risks appear by transfer of means to the other trader management (except PAMM-accounts). Also, here it is possible to refer actions of the Central Banks (currency interventions) and the governments, natural disasters, acts of terrorism and various indirect impacts on the market.

It is nearly impossible to predict non-market risks for 100%. But they can be reduced, trading not single one, but several currency pairs, using trading strategy, trading manually and using robots (advisors). The useful tip is not to invest only in your own trading but also in other assets.

In trading, first of all, it is worth remembering the correct money management. Below I will state some simple tips which will help you to reduce trading risks:

  • Expose stop orders right after market entrance
  • Use a reasonable leverage (1:100 – 1:200). Sometimes, after advisor installation into the trading terminal, it is correct to use 1:500, but in manual trading such risk is more often unjustified
  • Open new transactions only if you understand why you do it and you have the precise plan
  • Trade on a trend. If you catch retractable movements, be careful and trade small amounts
  • Close unprofitable transactions as fast as possible
  • Trade at those brokers to whom you trust
  • Directly during trading it is better to have an insurance on a case of electric power switching off or breakdown of “hard”. Many traders have not one, but two connections to the Internet, and also the reserve laptop (computer). 

These rules are universal and simple. Adopt them for yourself.

Other Forex risks

When the rate of a currency pair changes, it is good. After all exactly thanks to it, the trader gets to profit. But what to do if the course changed in the worst way for a trader?

Someone overstays, holding an unprofitable transaction open and hoping for a rate turn. Someone uses an averaging or Martingale method, increasing the thereby load of the deposit. The correct decision is to close the unprofitable transaction as quickly as possible.

If in a weekend you see that the loss exceeds profit, and thus you trade the fixed lot, so or week was not the best, or your trading system needs change.

Consider one important nuance: to get profit from the Forex exchange, it isn't obligatory to be engaged in the creation of forecasts where the price will go. It is possible to use mathematics, including Martingale method, positive swaps (Carry Trade strategy) or trade robots advisors.

Risks linked with Forex leverage. Many traders are afraid to use or on the contrary – use a big leverage thoughtlessly. In the case of the correct approach, the big Leverage can make more profit, than standard option 1:100. But the practice and understanding of that, what are you doing is necessary (as you trade). With a beginner is advised to begin with regular 1:100 or 1:200, and over time to pass to the advanced option 1:500.

Opening transaction without putting the stop orders, the trader risks not only a rare turn but also risks technically. After all, the electricity can disconnect or the computer will glitch. Buy the block of uninterrupted power supply or the laptop, connect to the stable and verified Internet provider. Believe, it makes sense when you trade on decent means.

Broker's choice. Very important point. Trading conditions depend on the broker. In other words, choose the broker with trading conditions the most suitable to you. The smallest spread and a lot, possibility of cent accounts trading, NDD, etc. The good broker is always ready to provide the best conditions to the new client. Never settle for less.

A couple of words should be said about a panic at the exchange. Quite often, especially after an exit of important news, the price of currency starts jumping as the madwoman. The trader sees it and struggles with fear to lose money and greed, desire to snatch the piece during such movement. Sensibleness aims at zero, the incorrect transaction of the overestimated amount – as a result, we lose money.

Don't assimilate to the crowd. Avoid panic! Act only within your own plan – your trade strategy. The market will be both tomorrow, and the day after tomorrow. It is sometimes better not to earn than to lose.

Remember that it is possible and it is necessary to reduce Forex risks. Forewarned is forearmed. Good luck!



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Number of comments: 3
  • Tim.norton
    • #

    I pay a lot of attention on risk reduction. It is a huge part of thoughtful and profitable trading. Even novice traders have to pay attention on risks just from the start.

  • Crisnew
    • #

    Every risk has to be taken wisely, especially when we are talking about Forex. The matter is about money, everything has to be calculated very carefully.

  • Joeneil
    • #

    Holding the unprofitable transaction - I've made such mistake thousand times, the attitude is like gambling, you just hope that you still have a chance to get your money back.