Four Ways in Managing Risks in Forex
Whenever you trade forex, whether you’re a novice trader or an experienced trader, you need to ace your management skills. Having good managing skills decreases your losses and improves your trading portfolio; doing so also reduces the chances of getting emotional that can affect your effectiveness in trading. This article will discuss ways to manage your risks and trade more efficiently whenever your currencies are in the foreign exchange market.
Understanding the Forex Market
The forex market is one of the most liquid and largest financial markets in the world. Millions of traders participate in currency trading every day, making billions of dollars every day; such popular currencies being traded every day are USD, AUD, JPY (Yen), EURO, and many more. The forex market is vast and, in nature and is unregulated, meaning traders have more flexibility and can trade more freely.
There are three types of forex market:
Forward Market: It is the process of buying or selling a forward contract with other parties, either simultaneously or in a series of trades with buy-in from other parties. A forward market can be made in two ways: directly (as a dealer) or indirectly (as an agent for another party) (indirect). The agent can either provide contracts from the seller or act as a go-between for the buyer and the seller.
Spot Market: A spot market is a physical exchange of a currency pair that occurs when the trade is completed. Cash and conventional clearance procedures may still be required in spot markets.
Futures Market: In a futures contract, one party (the seller) purchases a specific amount of a commodity from another party (the buyer) at a specified time in the future.
Timing
One of the best ways whenever you trade forex is timing your deals. With forex being 24 hours a day, missing an opportunity for a potential profit can be frustrating sometimes, which is why having “time of the day” is essential. For example, you can trade in the morning during breakfast or afternoon. Another example is that you can set time on your trades by strictly trading from 9 am to 5 pm daily. You can ignore all of what has been said entirely; follow this technique many traders do to reduce their chances of missing an opportunity to get an automated trading bot. However, it’s better if you do the trading personally.
Watching the News
Like in regular news, knowing what’s going on keeps you updated and updated on specific events that can affect your decisions. For example, news dropped that Walmart’s toilet paper stocks are running out; knowing this, you’d probably buy or hoard toilet paper to save up for yourself. Forex traders can apply the same logic in forex. News events in forex are essential for traders when they’re managing their risks. In forex, news events can be negative and positive. So, always be knowledgeable of what’s hot or about to get trendy. The more you know, the more you can manage your risks.
Know Your Risk Tolerance
How much are you willing to risk? Are you ready to risk 1%, 3%, or 10% when trading? Knowing your risk tolerance is important because it can affect your comfort level thus affecting your decision-making. You can start risking a low percentage and increase it as you get more comfortable.
Have a trading strategy
Trading is a risky business. You could lose money fast and efficiently. Here’s why it’s crucial to have a trading strategy in place: 1. your instincts can be right – sometimes. 2. You might lose money early, but that doesn’t automatically mean that you will also lose money on your next trade. 3. Your trade strategy can reduce your ‘unlucky days’; this means with a trading strategy you can reduce the times where you lost so much money in a single or few trades. This is why having a trading strategy is essential. Having one can reduce your risks of losing and have more profits in your trading portfolio.
