Forex trading offers lucrative opportunities, but also has risks involved. To succeed in the market, traders should be aware of these risks and learn how to manage them. It’s effective risk management that distinguishes trading from gambling and prevents traders from incurring significant losses. Forex market offers a wide variety of ideas to control trading risks, and here are some of them.
Control over losses can be an effective way to minimize trading risks. To use this method, you can set a stop loss at a certain level when initiating a trade. Adequately established stop loss allows setting a reasonable limit to risk associated with the trade.
Hedging in forex market serves as an insurance on a trade. You can employ various hedging tools to mitigate your trading risks. They include, for instance, direct hedges, trading multiple currency pairs at a time, and forex options. Hedging is recommended to experienced traders, since it requires sufficient understanding of the market and its movements.
Controlling Risk Exposure
Control over trading risk exposure involves careful tracking of lot sizes and correlations between currency pairs. In practice, it means that you should realize the level of risk you can tolerate and use leverage accordingly. It is also important to limit the overall risk exposure by managing the amount of trades that involve exposure to the same risk.