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Five ways to control your risk trading forex

by , 10 June 2015

Forex trading can be lucrative, but like all forms of trading, it's risky. You risk losing money.

To deal with this risk, you can use a number of different things to combat it. Whilst you cannot remove the risks you take on forex trading, you can do things to minimise the risks.

So what can you do to control your risks from trading forex?

Read on to find out…

Five risk management rules to stick to when you trade forex

By adhering to some strict risk management rules when trading forex, you can help to preserve your trading capital…

Forex risk management rule #1: Use stop losses
You’ll find that the platform you use to trade forex through will insist on a stop loss. Make sure you use the stop loss wisely.

Never move a stop loss to increase your potential losses.

Forex risk management rule #2: Don’t guess your stop loss
Make sure you use a risk/reward ratio for calculating your stop loss as part of your strategy.

For example, a risk/reward ratio of 1:2. If your trade hits its stop loss, you’ll lose 20%, but if it hits your take profit, you’ll make 40%.

Forex risk management rule #3: Stick to your strategy
Stick to your chosen strategy.

Whilst testing your strategy, you can use a demo account to see how it performs. By following your strategy, it’s easier to see where you make mistakes and you can take steps to fix them.

Never trade on a whim.

Forex risk management rule #4: Use position sizing
Only risk a small portion of your trading pot on each forex trade. By doing this, you’re not risking a large amount of your cash on one trade and limit the effects of losses.

It’s also not wise to have too many trades open at one. Stick to one or two.

Forex risk management rule #5: Don’t trade money you can’t afford to lose
You should never use money you need to trade forex with. Always use money you can afford to lose.

And never use borrowed funds to trade either. This just increases your risk.

So there you have it. Five ways to control your risk trading forex.

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Five ways to control your risk trading forex
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