Minimizing Your Risks in Forex Trading

Many people come to forex trading because of the wild and outrageous profits that can be made. Yes, that is true. But the opposite is also true. As easy as it is to make a lot of money in forex, you can also lose if you don’t realize that from the beginning of the game. Learning how to minimize your losses by reducing your risk is how you stay ahead in forex. Staying realistic about how much money you can earn will help you manage your risk. Here are a few pointers to get you going in a safe direction.

How Much on Each Trade

The first question to ask yourself is how much you’re willing to risk on each trade. Many professionals recommend not going above 1% on any particular trade. That sounds overly minimal, but in the end it is very manageable. If you actually lose 1% on a trade, you are not sunk. You can get up and keep moving. Keep your mind on the long run. If you were to earn 1% on each trade over a period of five or ten years, where would you be? Do a quick calculation of how much you would earn long term if you limited your risk to 1% per trade. Still not sure? Take stock of how you feel when you make a specific trade. What is your psychological reaction when placing those trades? Do you feel so comfortable that you can leave it and go on to something else? Or do you think you have to sit there and watch it closely? If those are the feelings that the trade inspires, then there’s a good chance that you entered into a high-risk deal. One trade should not break your bank, and it should not make you so nervous that you can’t leave it and go on to something else. When making a trade, keep in mind that even some of the pros in forex have only a 55-60% chance of winning. As a newbie, can you expect to win more than that?

Numbers in Forex

When trading in forex, it’s important to not focus on each and every trade. Because some trades will win and some will lose. But go for the long run when trading. Start by keeping your risk low so you can stay in the game. What benefit will you see if you risk too much in the beginning and lose it? As we stated before, even the professionals do not expect to profit from each trade. So you can theoretically lose with 3 or 4 trades but then suddenly profit wildly from the 5th. On the one hand, it depends on how much you’re investing, but on the other hand, it has to do with how you’re protecting your account by minimizing the amount of risk you’re willing to take.

Bottom Line

Figure out what the appropriate trade size is for your account. You can use a percentage of your account’s equity or you can go with a fixed lot size. Whatever it is, stick to it and watch your account grow.

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