Forex trading is inherently risky. It is impossible to completely eradicate it, but all successful traders will look to mitigate it in some way in order to protect what they’ve got.
This is to say that they will both reduce their exposure to risk, and reduce its potential effects. Let’s take a look at some of the ways in which you might try to mitigate risk when you’re trading.
Limiting Your InvestmentOne very simple way to ensure that you’re guarding yourself against significant risk is to never actually risk a large amount of your capital at any given time or in any given trade.
Most traders work to a system where they never put more than a couple of percent of all their money into a single position. This means that you can never actually lose a huge amount of money when something significant and unexpected happens.
Be very strict about this of course; even if you see a position that you think is guaranteed to be successful, you should stick to your own self-imposed rules.
Stop Loss OrdersThese orders simply instruct your broker to pull you out of the position as soon as you drop down to a certain point. This is extremely useful in ensuring a sudden and drastic change in price doesn’t damage your finances before you can react.
As a general rule, you shouldn’t ever enter a trade without putting one in place. They really are a valuable tool, and all good brokers, such as ETX Capital, will allow you to place one.
The only thing you need to remember is that if you don’t give yourself enough room for the price to drop a bit, you could end up repeatedly pulling out of the position too soon, which causes a lot of hassle and potentially costs a lot of money.
The Right MentalitySo much of financial trading is about being in the right state of mind. If you find yourself getting particularly frustrated for instance, you’re far more likely to attempt to make trades that you normally wouldn’t just to recoup some of your losses.
Never trade when you’re not in a comfortable and objective state or you will make things a lot riskier.
And never get emotionally attached either – it sound odd, but traders can and do place too much faith in one currency or commodity because they’re attached to it.
