Risk Management

Don’t underestimate your risks

Risk is inherent in all financial trading, and every forex trader should know the basic techniques for managing and minimizing those risks.

The two most important forex trading tools for minimizing risk are the “stop loss” and the “take profit.” These tools function as limits that an investor can set, in advance, when placing a forex order.

A stop loss functions as a lower limit, allowing the trader to exit a position if the currency pair exchange rate drops below a preset level. A stop loss is just what it sounds like – a stop on the loss of a losing trade. The trader can

set a stop loss in the trading platform by selecting a specific price point to automatically exit a trading position.

Please note that when stop loss is triggered a market order will be sent so the price cannot be guaranteed.

A take profit is the opposite; it is an upper limit that can be preset on a forex trade. Take profits allow traders to exit a position at a profitable level. Like stop losses, take profits can be preset in the trading platform.

While stop losses and take profits are valuable tools for a trader to manage the normal risks of the forex markets, the trader’s most important tool is his outlook on trading. A trader needs to enter the markets fully aware that financial trading includes an element of risk, that trades can go south, and that every transaction must be made with that mind. A good trader needs to be disciplined, to set a trading plan and stick to it, and not to chase a “feeling” that a trade will shift in a profitable direction.