Risk management at Forex is an important point on which the accuracy of actions and the profitability of transactions largely depend. In fact, we can say that any transaction in the foreign exchange market is a highly risky enterprise that does not guarantee a favorable outcome. But it is precisely in the hands of each trader that is the key to solving this problem, because by applying risk control methods, you can significantly increase the overall profitability of Forex transactions and minimize losses, preventing them and reducing losses.
Risk management is based on four main factors:
- the reaction rate of the trader in the formation of the reverse movement of the market;
- analytical approach to forecasting the degree of riskiness of a transaction;
- differentiation of permissible and unacceptable risks;
- elimination of unjustified risks due to clear planning of actions.
And the main rule according to which it is worth acting is the need to combine accurate calculation and luck, not exceeding the level of weighted risk. Only such an approach allows for rational risk management in any situation.
However, in addition to this, there are many rules, the observance of which allows minimizing the riskiness of transactions.
Any doubts should not be interpreted in favor of the market
In fact, the presence of doubt indicates that the action plan is not as good as one might expect. And, if the market behaves unstable, going beyond the forecasts, or doubts do not allow the trader to act calmly and deliberately, it is better to leave it by minimizing losses.
Excessive emotionality hurts
The inability to control emotions for a trader is a sign of unsuitability. To trade on the foreign exchange market, composure and sanity are simply necessary, without which it is impossible to provide sufficient predictability of actions. If the nerves can not stand it, and emotions take precedence over the mind – it is necessary to exit the trade and temporarily withdraw from the situation. Change of activity (intellectual to physical) or communication with other traders who have been in a similar situation and managed to curb their emotions helps to cope with themselves.
The practice of foreign exchange trading shows that traders who concentrate their efforts on preparing for one transaction demonstrate much greater efficiency than those who spray their attention in several directions. A well-prepared transaction will always be riskier than the results of intuitive trading. A smaller number of transactions eliminates the need for traders to pay excessively large commissions.
Defense against attack
Starting a trade, you must be prepared for the fact that the market can turn against the predicted direction. Before starting work, it is necessary to calculate all possible risks, protecting the transaction from losses.
Protection measures include:
- installation of ” stops “;
- calculation of the maximum allowable loan amount in the current situation;
- safe and prepared exit from the market, based on preliminary planning.
Trading on the trend – one way to minimize the risks. When the market turns against the trend or a deliberately unsuccessful opening of positions, it is worthwhile to reduce the risk by applying one of the available methods. But it is worth remembering that even losses make it possible to accumulate your own experience, allow you to evaluate actions and analyze the causes of errors, subsequently developing ways to eliminate them.
Stop loss and take profit
Using stop loss and take profit limits is the main way to minimize risks. With the correct setting of levels, you can achieve the fastest possible closing of the transaction at the initial stage of the negative market movement. And the use of time-based stoplights allows you to cope with the situation in case of trader uncertainty in the decisions made or the choice of a trading strategy.
Diversification of risks
The common assertion that you should not “lay eggs in one basket” is not meaningless. Having at your disposal a certain amount of funds, it is necessary to use only a part of them, while maintaining a certain part of the capital as a reserve fund. And concluding several transactions, it is necessary to calculate the size of the amount that will be used to provide each of them, in advance, on average allocating no more than 5% of the total amount of funds to open one position.
Having your own trading system allows the trader to minimize risks due to systematic trading based on the forecasting and application of analytical data. You can read about how to create your own trading strategy in the article “Forex. Development of a trading strategy. “
Risks associated with technical equipment failures and other non-standard situations can be avoided by abandoning the “physical” use of the computer in favor of virtual servers with the possibility of constant remote access to control terminal operation.
Broker bad faith
In fact, it is possible to reduce the risk of fraudulent actions on the part of the broker only by preliminary collecting data on his work. When choosing a brokerage organization, it is necessary to carefully check all the information about its reputation and weigh the decisions made, based on your own preferences and an objective assessment of the situation.