Forex Trading Advice – How to Manage Risk Before Investing Your Money in the Foreign Exchange Market
Traders need to know how to manage risk before investing their money in the foreign exchange market. Unlike stocks, currency rates can move rapidly, which can result in substantial losses. The key to minimizing these losses is to manage risk and use a strong risk management strategy.
Choosing a strategy depends on your personal risk tolerance and available time. A good rule of thumb is to risk no more than 2% of your capital per trade.
Most brokers allow you to fund your account with a small deposit. However, most regulated forex brokers also limit the leverage available to retail traders. Leverage can multiply a gain by up to 30%. Leverage also increases risk. It is important to use leverage wisely and understand the risks involved.
Leverage should be used only as part of a strategy that is tailored to the risk involved. A trader’s personality and risk tolerance also determine the amount of risk they can handle.
In addition, a good risk management strategy will include a stop loss order. This will limit losses and help prevent a string of losses.
If you are new to forex trading, you should start with smaller trades. As you gain confidence, you can work up to larger trades. It is a good idea to learn on a demo account first, before you invest real money. This allows you to practice using the trading platform and backtesting your strategy.
Most online brokers offer a demo account. This gives you an opportunity to test out your forex trading strategy on a live account.