Forex Risk Management

If you are actively trading in the forex markets then forex risk  management needs to be high on your list of priorities to become adept at. The reasons for this are quite clear. Forex can make you enormous amounts of money very quickly (for example this forex system consistently makes money), but on the flip side it is also possible to lose money very quickly, and the difference between a sustainable trading strategy and gambling really comes down to money management.

Forex risk management cannot simply be left to chance. In the same way that you may well look at historical forex data to plan out what to trade and when. You equally need to have strategies in place to tell you when to let the profits in a trade run, and when to cut them short. And you need to have these clearly established ahead of time, so that in the heat of the trading battle you don’t fall prey to that little voice in your head that says that this situation is somehow different from previous occasions, and so you should just “Wing It” or “Go With Your Instinct”. More often then not that thought will end up seeing you poorer then when you started out, so don’t fall prey to it.

Instead use a forex system that works and keep the following forex risk strategies in mind when you trade.
Here are Five Forex Risk Management Strategies to consider:


1/ Establish Limits On The Amount You Trade

This is a key aspect to regaining control in your trading. You can make winning trades 90% of the time. But still end up losing all your money if you start to think you are invincible and keep on doubling up every time.  You should establish clear limits on how much of your total bankroll you are prepared to risk on any one trade.  A good rule of thumb might be to not invest more than 1% in any single trade. So that whilst you are unlikely to make a killing very quickly, you are also limiting your losses. And should be able to sleep better at night


2/ Make Sure You Have Clearly Defined Stop Loss Points And Take Your Profits

Again this is primarily about limiting trading blindness. It is no good imagining that everything will turn out ok. You have to know it for sure. And for that to be the case you have to have clear established stop points for both profits and losses in your forex risk management plan.


3/ Avoid Trading Similar Instruments That Tend To Track Each Other

For example, the GBP and the US Dollar tend to move together, as do the Euro and the US Dollar. So it is best not to be trade both of them simultaneously. All you are doing in such a situation is to ramp up risk. You will make more money on trades that go your way, but on the flip side you will make greater losses if things turn out badly, as both will fall together. In essence you will have become a gambler, which should not be your aim with trading forex. Making consistent profits should be. And for that you need not only a great forex system, but to be good at handling the money once you have made it.


4/ Avoid Chasing Your Losses

This is a key forex risk management principal. If you constantly chase a trade in the hope that it will turn your way, then you are acting a little like someone betting on a roulette wheel who keeps trying to double up on black, when the wheel keeps churning out red numbers, under the thought that eventually his luck must turn. This is not a good way to handle a financial portfolio, and you should be wary of becoming overly emotional about trading. The more emotionally dispassionate you can remain the better it will work for you.





5/ Make Your Portfolio More Diverse

Always try to add in additional diversity into your portfolio through stock, options , bonds etc. In this way you will be more likely to have a more stable fund of money, as some will make losses, but others will profit, and they will balance each other out over time.
Forex Risk… Final Thoughts

One great way that you can add more diversity into your trading and reduce your forex risk is to try out proven forex trading systems like this one. As you can then get to piggyback on other traders experiences, often for relatively small amounts of money.