We all know that trading Forex is a risky business and we encounter risks with each trade on a daily basis. It’s our duty as traders to protect our capital from these risks as much as possible.
Recently, the hottest topic in the world of financial markets is the planned ESMA regulation for sure, not only restricting trading binary options completely, but it also limits the use of financial leverage followingly:
Generally, it is seen as something negative and everybody wants to avoid it, but experienced traders realize that losing is the only thing we can control through money management.
The approach towards losses is clear: they have to be as small as possible. The lower a loss is the better.
Specifically, there are two key aspects of your account statement that give a valuable insight into how well you are performing as a trader. Essentially, these two key aspects are the relationship between your average winning trade to your average losing trade and the win per trade ratio or also known as the winning percentage.
Anyone who is into Forex trading more seriously has probably started with one ultimate goal – to be able to live from the generated profits by trading the currency market. Novice traders, however, commonly misunderstand how this can be done - largely due to misleading advertisements and sales schemes by Forex companies.
So, without any further ado, let’s get into clearing up some misconceptions regarding Forex trading as a source of income and how much capital would one need to deposit in their Forex account in order be able to generate an income from it.
Stop-loss trading orders are one of the most important parts of every forex trader’s strategy. Naturally, there are traders who are brave enough to trade without stop-loss orders or other kinds of capital protection, but it can be very hard for them to achieve stable results long-term.
The answer to the question “How much should I start with in Forex trading?” depends on several factors that we will explore in this article. But, first of all, one word of advice: Don’t be misled by the minimum deposits that you see on many brokers’ websites as part of their requirements to start trading.
One such possibility is investing in the strategies of experienced traders who trade for a living either on Forex or on other markets. But to be able to legally manage their clients’ funds, they must get the necessary authorization or licenses, which is not an easy task.
It's about settings, approaches, calculations, analyses that give us the answer to how much capital we can afford to lose in a concrete trading session and what the lowest ratio between profit and loss we need is, as far as money management goes, to keep the trading account's profitability.
For example, if you hold US Dollars, or if you are receiving payments in US Dollars while it’s not your domestic currency, then you are basically long the Dollar and you are exposed to the risk of it falling in value. If you own a house you are exposed to the risk of its price falling. Whether it’s a currency, real estate, a commodity or something else, if you hold it or own it there is a risk that its value may decline.
While most people will not think of ways to protect their assets or investments in such cases, businesses and professional investors are always thinking about this and are looking for ways to do so.
Do you disagree with ESMA about the restrictions on trading leverage in EU? Make your opinion count!
Volatility is something that is always present in markets, but many novice traders are not really aware of or don’t pay enough attention to. Yet, volatility is an absolutely crucial aspect of trading financial markets because when volatility changes the rules of the game usually change with it. Thus, very often new situations are created in the markets where what worked in the past doesn’t work now.
Operating on the foreign exchange market long term is the dream of many beginning and experienced traders. When traders get through the rough patch of starting out in Forex, they get more knowledge, experience, and abilities to get closer to their goal.
In practice, letting a winner run can many times translate a winner turning into a loser and cutting losers early can, in the end, turn out to be cutting a winner prematurely.
And certainly, those are situations we most utterly wish to avoid.
The fact of the matter is that every trader is likely to lose a lot of money unless he understands the basics of effective money and risk management. The article shall discuss eight of the most important points to always remember regarding the forex risk management.
Here are a few important steps that every trader can take to minimize potential losses and preserve their investment capital.
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