Trading any kind of market, let alone the forex market, can fill you with a sense of limbo. When you lay your money down for a trade your money is essentially on the fence, with it set to fall one way or the other. This means that with each move you make while FX trading you are likely to encounter risk. However, risk isn’t something you must face in abundance, as the right steps can make sure it remains reduced. The following will provide you with all the information you need to manage your FX trading risk the right way.
While stop losses are key to decreasing the level of risk within a trade, there are other ways to reduce risk on a manual level. With every trade you make you need to know when to admit your mistakes and exit when the going becomes unnecessarily rough. If you are new to forex it is almost guaranteed that you’ll eventually find yourself on the end of a bad deal, buying high before the price bottoms out. It happens to everyone at some point and the key comes in accepting loss and accepting that it is time to make a hasty exit. When losses occur, don’t be foolish enough to believe that the market will right itself overtime, as such thought process could leave you even further out of pocket.
Following on from the above is a risk and trading technique that can only be developed over time. It doesn’t matter whether you are trading stocks or FX trading, you need to learn how to trade in an emotionless state. It is easy to become emotionally attached to an investment, especially one that has previously performed well over time. But if you want to be successful you can’t afford to trade this way, you need to be ruthless in cutting loose poor performing investments. Simply put, FX trading isn’t for the faint of heart.
Risk management is something that comes about through both manual and automated methods. As discussed previously the onus is on you to stop losses yourself by being savvy enough to spot a ‘losing’ investment. However, there are also automated tools that can help you in times of need. Stop losses and guaranteed stop losses are systems that can control your losses, as they step-in to halt your involvement with a trade when things get too bad. Stop losses are generally the budgetary option, but for additional security you should choose the guaranteed option to make sure you losses don’t spiral out of control while FX trading.
FX trading is a risky venture and you should never ever take it to be something else. You will find that risk management is key factor in finding success, with it not being as tough a task to handle as you may think. Take in all the above information and you’ll find that your losses will remain under control next time you are FX trading.
Spreadbetting, CFD trading and Forex are leveraged. This means they can result in losses exceeding your original deposit. Ensure you understand the risks, seek independent financial advice if necessary. The value of shares and the income from them may go down as well as up. Nothing on this website constitutes a solicitation or recommendation to enter into any security or investment.
Alexander Bowring is a London based writer and a Southampton Solent University Screenwriting graduate. He has worked alongside TV personality and Telegraph feature writer Alison Cork, whilst also having produced content for ITV, This Morning, Canvas8, Who’s Jack, Alison at Home, and Bonallack & Bishop Solicitors. Alexander also has a keen interest in investments.