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Important of Forex Risk Management

Learn why profitable forex traders use proper forex risk management and how it can be the difference between making money or blowing your account.

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Important of Forex Risk Management

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  1. Important of Risk Management in Forex

  2. Index • Risk Management in Forex • Important of Risk Management • Controlling Losses in Forex Trading • Tracking Overall the Exposure

  3. Risk Management in Forex • Forex risk management can make the difference between the survival or sudden end with forex trading. • You can have the best trading system in the world and still fail without the proper risk management. • Risk management is a mixture of multiple ideas to control your trading risk.

  4. It can be limiting your trade lot size, hedging, trading only during certain hours or days, or knowing when to take losses.

  5. Important of Risk Management in Forex • Risk management is one of the key concepts to surviving as a forex trader. • It is a concept to grasp for the traders, but more difficult to apply. • Brokers in the industry like to talk about the profits of using the leverage and keep the focus off of the drawbacks.

  6. It can causes traders to come to the trading platform with the mindset that they should be taking high risk and aim for the big bucks. • It seems all too easy for those that have done it with a forex demo account, but once real money and emotions come in, things change. • It is where the real risk management is important.

  7. Controlling Losses in Forex Trading • One form of risk management is controlling your losses. Know when to cut your losses in trade. • You can use a hard stop or a mental stop. • A hard stop is when you set the stop loss at a specific level as you initiate your trade.

  8. A mental stop is when you set your limits to how much pressure or drawdown you take for the trade.

  9. Figuring out where to set the stop loss is a science all to itself, but the main thing is, it has to be in a way that the reasonably limits the risk on a trade and makes good sense to you. • Once the stop loss is set in your head, or on your trading platform, stick to with it.

  10. It is easy to fall into the trap of moving the stop loss farther and farther out. • If you do this, you are not cutting the losses effectively, and it will ruin you in the end.

  11. Tracking Overall The Exposure • While using the reduced lot size is a good thing, it will not help you very much if you open too many lots. • It is also important to understand the correlations between currency pairs. • Example, if you go short on EUR/USD and long on USD/CHF, you are exposed two times to the USD and in the same direction. It equates to being long 2 lots of the USD.

  12. If the USD goes down, you have a double dose of pain. Keeping overall exposure limited will reduce your risk and keep you in the game for the long haul.

  13. Thank You

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