How To Manage Risks In Forex
With online forex trading becoming more accessible these days, it pays to mitigate the risks in the market and in the activity itself. Most traders now employ brokerage firms for the best guidance when navigating the volatile financial markets. But it is still best if you, as a responsible forex trader, have sufficient knowledge of this vibrant money marketplace.
For those new to forex trading or are contemplating to take a deep dive into the forex business, this piece will provide you with insights in managing the risks you may encounter along the way.
What are other options that can diversify your portfolio?
A Contract for Difference (CFD) is a form of derivative trading where you speculate on price fluctuations of instruments such as indices, shares, currencies, commodities, and treasuries. You derive profits or losses from the movements of the underlying assets even without physical ownership. Trading precious metals (i.e. gold or silver) can also expand your portfolio.
Tips to help you in forex trading:
Here are seven tips to help you at the beginning of your forex journey:
Have a game plan – otherwise known as a “trading plan,” it is a proven time-saving tool in analytical and decision-making processes. At times, it can prevent you from making emotionally-driven decisions. You can test your plan and adjust accordingly using software to see if it works.
Take advantage of technology – for forex trading, charting platforms are available online and will provide you with different ways of viewing and analysing the market. Market updates can also be easily accessed through your smartphone, so you can virtually monitor your trades from anywhere, any time. Online trading is also the trend, so you can use historical data to backtest trading strategies before investing your hard-earned money.
Set your ‘stop-loss order’ – you must always determine the amount of risk you’re willing to accept in every trade, and this is called your “stop-loss.” This may be expressed in currencies or percentages. Stop-loss orders help avoid large-scale losses and limit your exposure to substantial losses in your trades.
Remain focused – you have a solid trading plan, but this is not a guarantee that you will always win the game. It is important to accept that gains and losses are always possible when trading, so it would be wise to keep your emotions in check and take care of your mental health. If you experience losses, strive to improve next time. If you gain profit, treat it as another step of many to reach your targets.
Protect your investment – your trading capital usually comes from your savings and hard work. While losses are normal occurrences in forex trading, it is not normal practice to take unnecessary risks that may adversely impact your investments. Protecting your capital means limiting your exposure to low or medium risks.
Risk only what you can afford – don’t risk what you can’t afford to lose. Do not put an amount in your trading account that you set aside to pay for something important, like mortgage payments or college tuition money. It is vital to risk only an amount within your tolerable degree of loss.
Know when to stop – you should also know when to stop trading. Taking a step back and analysing what you have been doing wrong can help you cut your losses and arrest your downward spiral. Keeping a trading journal can help you with this. Sometimes, you become an ineffective trader because of a health problem or stress, or you have an ineffective trading plan that needs tweaking or an overhaul. Whichever may hold true, taking a break to address these issues is worth considering.
While brokers exist to help you as a trader, being knowledgeable in the forex trading business – including how to manage the risks involved – may spell the difference between winning and winning big. After all, it will still be you making those big decisions and it pays to make informed choices when that time comes.
Start trading with Blueberry Markets for as low as $100 when you open a live account. We offer very low spreads and lightning-fast trade executions so you can take advantage of winning opportunities.