Minimze Your Forex Trading Risk

Most traders only think about how to get bigger profits, how to make each trade give them the most they can possible get. However, profit is only secondary in its importance. First, comes risk. After all, the worse thing that can happen isn't not making any money. The worse thing is to lose money.

True, you got into Forex to make profits, but unless you know how to control your risk, you will never, ever achieve lasting profit. Sure, you may have winning trades, you may even have a long streak, but a single bad trade whose risk you don't control can wipe all those profits away in an instant. This is a pitfall which most traders fall into and one which you must avoid.

Therefore, read this article as it will teach you some easy ways to minimize your Forex trading risk: 

1. Control your maximum loss by using a tight Stop Loss. The Stop Loss order takes you out of the market at a predetermined price, cutting any loss short. Of course, you don't enter a trade believing it will end up a loser, but anything can happen even for the best traders.

Trading without a Stop Loss is like jumping out of a plane with a parachute. Never, ever enter a trade without considering the maximum you're prepared to lose and setting the right Stop Loss order.

2. Minimize leverage - One of the main attractions of Forex is leverage. Basically, you can leverage your trade many times over (some brokers allow up to 400:1 leverage). If you win, you get to make an impressive ROI. However, if you lose, you lose big. In some cases, you can be thrown out of a trade due to minor market fluctuations.

For instance, let's say you took a 200:1 leverage on your trade. If the market turns a 0.5% against you, then you're out of the trade since 0.5% times 200 equals 100% of your trade. If the market turns a 0.1% against you, you're down 20%. See how risky this can be?

I recommend limiting your leverage. Never exceed 10:1 and even that much should only be used rarely.

3. Always trade with a complete system - Just like you need a map to tell you where you're going so too must you have a trading system to operate with. And it has to be a complete system, a trading method which always tells you what you need to do. If you leave things to chance, you will end up making mistakes. You have to know when to trade and when not too, where to place your orders both Stop Loss and Take Profit, how much you should trade and so on.

If you're just starting out and you're looking for a system, here is a good one for new traders: Forex Nitty Gritty trading method

4. Take things gradually. If you don't have enough experience in trading, I urge you to take things slowly and safely. Trade small lots at first and don't make too many trades. Try to learn from your trades by writing them down in a journal. Bigger traders will come with time so be patient.

5. Don't follow tips blindly - Don't follow anonymous tips in open Forex forum. Have a mind of your own. Most traders don't know anything more than you do, so don't rush into a trade without making your own mind about it.