TIPS ON RISK MANAGEMENT IN THE FOREX MARKET

We are going to address, in this opportunity, an otherwise sensible subject for the trading in Forex. We are referring to Risk Management. For this introduction we want to define risk management in a very simple way. When a trader enters the currency market, he does so with only one intention: to make money. Well, managing risk is a strategy to ... avoid losing it! As simple as that. Let's, then, know a little more about risk management in the Forex market.

WHAT DO WE SPEAK WHEN WE TALK ABOUT RISK MANAGEMENT?

It is no surprise that the Forex market is the largest financial market in the world. It moves about 5.1 trillion dollars a day, and the assets of this market, which are not other than the currencies of different countries. As we know, these assets are extremely volatile, therefore making good money in Forex, as losing it are permanent possibilities.

We also know that the greater the risk assumed by the trader, the greater the benefits that can be obtained. What should not be forgotten is that the chances of losing are also greater.

The Forex market is like a very sensual romance, it can seduce you to the point of risking beyond what you can lose. This is where risk management becomes a strategy. It is about having a tool that will prevent your money from going through the drain, in a market as changing as that of foreign exchange.

Why a trader fails and finally ends up abandoning the Forex market? Simply because it has suffered from a strategy to minimize the risks of losses. Risk management will not immunize the trader against losses. It will help reduce them to a minimum.

HOW TO IMPLEMENT RISK MANAGEMENT?

Never risk beyond what can be endured. That should be the thread of a risk management plan in the Forex market.

When entering the foreign exchange market it is very important to have a trading plan in advance. In it, the trader must consider all the risks that can be shed from the chosen positions to market.

NOTES TO REDUCE RISK IN THE CURRENCY MARKET

A trader, if you want to make a beneficial difference in buying and selling currencies, you must consider certain aspects that are essential in risk management.

Once you have defined the currency pairs with which you will operate in the market, whether you are going to go long or short, it is critical that you establish a "stop loss." Known as "stop losses", stop loss are orders that you indicate to your broker so that the position stops in case the movement of the currencies goes against your position.

These stops will prevent you from losing more than you count. A buy stop loss will cause the transaction to close if the price of the currency rises to the limit that you placed at the stop.

In the case of a sales stop loss, it will cause the transaction to close if the price drops to the level you have defined.

Watch out for leverage. Some brokers offer high levels of leverage and this can be very tempting. Leverage gives you the possibility to get more profits if the position comes out as you expected. But, likewise, if the position goes against you, the losses could be far greater than you can bear.

Stick to trends. Foreign exchange prices are usually defined by large market participants - banks, hedges funds, multinational groups - and it is often a bad choice to try to go against the market consensus.

CREATE YOUR RISK MANAGEMENT PLAN FOR THE FOREX MARKET

No one goes to swim without knowing the risks of the chosen place. in the Forex market something similar happens. Before you go swimming in the currency market, you must take the trading plan with your strategy to manage risks in tow.

Risk management can make the difference between permanence and a quick exit from the Forex market. The tools are at your disposal.