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daisymarquez (1)


A trader should know how to efficiently tackle the risks in order to make profits consistently. This is where forex education plays a key role. ‘Risk management’ is one of the crucial topics in forex education. – PowerPoint PPT presentation

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Title: daisymarquez (1)

5 Tips for Managing Risk in Forex Trading
  • There is no reward without risks. Especially,
    when it comes to forex trading, the forex market
    is highly volatile and risky in nature. Despite
    the high probabilities for making huge profits,
    the market comes with the risk factor attached. A
    trader should know how to efficiently tackle the
    risks in order to make profits consistently. This
    is where forex education plays a key role. Risk
    management is one of the crucial topics in forex
    education. Without knowing how to manage risks,
    it is impossible for the trader to sustain in the
    trade world. 
  • Before you start to trade, draw a risk management
    plan to safeguard your investments. Therefore,
    even if you lose the trade, you will have a
    backup plan to avoid financial devastation. So,
    what are the risks in forex trading? 

  • Price fluctuations of currency pairs - This will
    make a trade difficult as the price may either go
    deep down or skyrocket to a top high  
  • Low liquidity in the forex market - Forex market
    is usually a high liquidity market but at times
    low liquidity can happen, where the trader cannot
    immediately sell or buy an asset to avoid loss
  • Increase or decrease in interest rates - At
    times, the interest rates may either increase or
    decrease in the forex market, affecting the
  • Impact of trading using leverage - When a trader
    trades using leverage, there are chances for him
    to forget the total amount that is at risk, as
    the investing amount is small. This can magnify
    both profits and losses.
  • Now that you are aware of some of the major risk
    types in forex trading,
  • let us now see how to smartly manage these risks.

5 Tips to Manage Risks in Forex Trading
  • Here are 5 practical tips or techniques to manage
    risks in forex trading.
  • Start trading with a demo account
  • If you are trading for the first time, open a
    demo account and practice trade techniques using
    virtual money. Demo trade account is no different
    from a real trade account in any manner. You
    won't be investing real money in a demo account.
    This will help you learn diverse trade techniques
    without the fear of losing any real money. There
    are no risks when you trade using a demo account.
    After continuous practices, once you are
    confident about your trade skills, you can open a
    real trade account with a suitable forex broker.
    Most brokers offer demo trade accounts to
    beginner traders.  

  • 2. Devise a trade plan 
  • Every trader should know the importance of a
    trade plan. Before beginning a trade, a trader
    should sort out his trading needs and goals, and
    formulate a relevant trade plan to achieve the
    goal. Having a trade plan will help the trader
    trade in an organized manner. A trade plan will
    help the trader act in a disciplined way. Traders
    can also keep a personal trade book to note down
    the results of each trade. 
  • 3. Follow stop-loss limit orders
  • Traders should have a firm decision about their
    entry and exit positions before they begin a
    trade. This can be facilitated by setting
    stop-loss orders and trade limits. Limit orders
    will automatically close the trade when the price
    reaches a specific level. This specific level
    will be chosen by the trader. Therefore, when the
    prices go down, the trader can prevent losses by
    following risk management techniques such as stop
    loss and limit orders. 

  • 4. Use leverage smartly  
  • Leverage is one of the beneficial and popularly
    used trading techniques among traders. When a
    trader trades using leverage, he will borrow a
    major amount of money from the broker, and invest
    only a small amount of his own in the trade. This
    will help him engage in large volumes of trade.
    But leverage can magnify both profits and losses.
    If you gain profitable returns, you will have
    made more money. And, if you have lost, you will
    be in a huge debt, as you owe the broker the
    borrowed money. Therefore, the trader should
    analyse the market and use leverage in a smart
    manner to get the benefits out of it. 
  • 5. Avoid acting emotionally 
  • Managing emotions while trading can be
    challenging for new traders. A success can
    trigger the trader to make more investments and
    end up in huge losses. Therefore, stick to your
    trade plan no matter what you gain. Indulge in
    market analysis, follow the new trends, and make
    your investment decisions accordingly. Do not let
    your emotions influence your trade decisions. 

  • Understand the nature of the forex market, be
    thorough in important trade concepts and follow
    the market trends regularly to stay updated about
    whats going on in the forex market. Get familiar
    with useful technical indicators, charts and
    tools to analyse the price movements and make
    trades accordingly.

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