Trading in any market is always a risk. The task of the trader is not to ensure himself absolutely risk-free trading, but to reduce possible losses to a minimum. There will always be trade losses. But conclusions about your trading results can only be made based on the results of trading for a month or a year, depending on what style of trading the trader has chosen for himself (short-term, medium-term or long-term). Forex risks and ways to reduce them have long been developed in practice. But newcomers to the market are either familiar with only a few of them, or do not know about their existence at all.
Today I want to offer you a generalized material on this topic. You will be able to determine for yourself in which direction you should work in order to minimize risks in Forex and get the best result from trading.
Trade volume and stop order
Controlling the volume of a trade is one of the basic conditions for successful trading. Unfortunately, some novice traders, driven by the desire to get rich quick, trade for the entire deposit. There are simply no options for the outcome of such trading. The trading account will definitely be drained. From the very beginning, you need to establish a rule for yourself on the size of the trade. To begin with, I would recommend staying at 1-2% of the deposit amount. And as you gain experience, the bar can be raised to 3-5%.
The next risk mitigation method is to use a stop loss order. Its effectiveness will largely depend on how correctly the size of the stop loss was determined. It must have a rationale. Most often, for this, significant levels formed on the chart or local extremes are used. But in any case, it is necessary to determine the size of SL not only in points, but also in money. Your potential loss should not exceed 1-2% of the deposit amount.
Relationship between TP and SL
Many trading strategies involve taking profit by take profit. Its optimal size will increase the effectiveness of the trading strategy. The trading system will be generally profitable if the number of profitable trades is at least 50% of the total number of open orders. At the same time, the size of the potential profit for each trading position should exceed the size of the possible loss by 2-3 times. If a trader is aiming for a higher profit result, then in this case the trading strategy should provide for the transfer of the transaction to breakeven.
Diversification of risks
This must be remembered for any type of investment. Trading in different, unrelated trading instruments allows you to save your funds in any development of events on the market. As a rule, traders choose to trade currency pairs with the dollar. And this is understandable. They are the ones who demonstrate high volatility, which is important for making money. But it does not hurt to pay attention to other instruments: pairs in which there is no dollar, indices or stocks. There is always a choice. And then the losses on one currency pair can be covered by the profit on another trading instrument.
Risks in Forex in practice can be quite insignificant if the trader takes the necessary measures in a timely manner.