How to manage risk in Forex trading is not a fashionable topic, but it is so very, very important to master if you want to become a profitable Forex trader.
Ironically enough, risk management tends to be one of the most overlooked and neglected areas in forex trading too which is reflected clearly in the statistics and shows an average of 90% of forex trading beginners experiencing loss and failure at the initial stage of their real-life trading experience.
A big reason for this common experience of failure is due to the lack of risk management.
Here are some tips how you can manage risk in forex:
1. Only trade money you don’t need
It might sound obvious, but the first rule in Forex trading, or any other kind of trading for that matter, is to only risk the money you can afford to lose. Many traders, especially beginners, skip this rule because they assume that it “won’t happen to them”.
2. Position sizing
Your position size is, in fact, more important than your entry and exit when trading with forex. Whenever your position size is too big or too small, you are practically not following the rules of risk management and you are either taking too much or too little risk.
3. Leverage Risk
Trading with leverage is a useful but potentially dangerous tool for your trading account if not properly understood. Make sure to fully understand how the leverage in your trading account works.
4. Risk of ruin
Always use a stop loss and risk only a small percentage of your account on each trade. Avoid martingale technique of buying more into a falling market or selling more into a rising market, which will always eventually fail.
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