Forex Risk Management Tips and Strategies from Top Traders

Trading has always involved from low to high risk. Moreover, due to world digitalization and an incredible increase in transaction speed, the trading risks have soared to an ever-high level. 

Forex market (also known as Foreign Exchange) is one of the most popular and active markets in the world nowadays. It has seen a significant rise of 29% since 2016 in daily trading volume, which now reaches $6.6 trillion. However, despite providing investors with greater profit opportunities, it also comes with more considerable risk. 

This guide will help you find out what Forex risk management is, why it is so important, how to calculate trading risks, how to increase the risk reward ratio, and what Forex risk management strategies to incorporate into your trading system when trading cfds, pairs, etc, to avoid losses and become a successful fx trader.

The article covers the following subjects:

What Is Risk Management? Definition & Meaning

Financial risk management is a range of actions that investors undertake to cut down losses. It can be integral market analysis, continuous monitoring, macro-economic data review, control over emotions, and other measures to protect the trading capital. 

Higher risk means greater profits, yet, more significant losses as well. Accordingly, Forex risk management is one of the core trading skills that any trader needs to dominate to become consistently profitable.

What is Foreign Exchange Risk Management?

Foreign exchange risks (also known as fx or base currency risks) refer to the potential losses caused by currency fluctuations. It implies that the total value of the investment may go down due to changes in the dollar value or in other involved currencies. Therefore, Forex risk management rules are a set of practices used by fx traders to mitigate uncertainty in their investment decisions and reduce losses.

Understanding Risk Management and What You Face Trading

For many people who begin to trade in the currency market, it is very difficult to accept the fact that trading always involves risks and the task of a trader is to minimize them and make efficient risk management. Some beginners ignore Forex risk management and do not achieve success in trading, shifting to some other types of business, which seem safer to them. 

It’s crucial to understand that Forex markets will always come with a rather high risk, since it is considered to be one of the biggest financial markets. However, in case you are risk tolerant, aware of common pitfalls and trading strategies, it won’t be a problem for you to manage your own risks in such a volatile market.

Let’s have a closer look at what risks you may face while trading in the Forex market. 

  1. Market risk. It implies that the investment value may decrease due to the price movements. It can be caused by economic, geopolitical, or other global issues that influence the whole financial market. Some common examples of market risk include changes in the interest rate, equity price moves, movements in the foreign currency exchange rates, etc.

  2. Leverage risk. In Forex trading leverage allows investors to open any position size that are significantly bigger than the amount of their deposit. However, it’s a double-edged sword which in some situations can make the losses exceed deposits. Therefore beginners are advised to use less leverage.

  3. Liquidity risk. Some currencies and trading products are more liquid than others. The faster you can sell the asset at a reasonable price the more liquid it is. Thus, liquidity risk implies that you may not be able to sell your asset at a preferable market price and achieve the initially expected profit.

  4. Interest rate risk. The interest rate has a direct influence on the country’s exchange rate. The higher the interest rate the stronger the base currency is and vice versa. Thus, the fluctuations in the interest rate can result in drastic changes in the fx prices.

  5. Country risk. Political and economical stability plays a key role in currency trading. In case the country doesn’t have enough reserves to ensure a fixed exchange rate, the changes in it can lead to currency devaluation and have a huge impact on the Forex trading price subsequently.

  6. Risk of ruin. This risk refers to the situation when investors can’t sustain the trade being out of the trading capital. It means that having developed a long-running trading strategy they don’t have enough risk capital in their trading account to withstand while the asset value is moving to the opposite from the expected direction.

To get a more profound understanding of Forex risk management check out the following video where a trader addresses this complicated subject by sharing his money management tactics and demonstrating them in real-time to open a position size.

What Can Go Wrong?

Having described the main types of Forex trading risks it’s also important to underline that the majority of them usually result from market analysis mistakes, Force Majeure, and human factor errors.

1. Market analysis and forecast mistakes. Careful and systematic monitoring followed by adequate decisions on its basis is a core element in determining traders’ success. Any publication of economic data such as central bank decisions, the release of the results of the Fed’s meeting, meetings of other central banks have their effects. Thus, to minimize the risks investors have to take into account more details about the market to develop a robust Forex risk management plan. However, it’s rather complicated to correctly assess the importance of the particular news, thus, mistakes in the market analysis and forecasts are the most widespread. Here are some recommendations to reduce this high risk:

  • Do not blindly trust in everything that is reported in the media and be especially careful with “expert” forecasts. Refer to official data reported by news agencies and official resources. 

  • Employ supplementary analytical tools: economic calendar, stock trading screeners.

  • Estimate the economic data in dynamics, comparing it with the expectations of analysts and with the previous reports.

2. Force Majeure. It can result from unexpected political decisions, man-made disasters, terrorist attacks, the discovery of new mineral deposits, market launch of a new product that has not been previously announced, sudden bankruptcy, etc. Force majeure can have both immediate and long-term consequences.

3. Human factor. Stress, lack of attention, burnout, fatigue, some character traits, etc. can cause issues in any sphere, trading is not the exception.

Why Is Risk Management Important in Trading?

Forex risk management in trading has a direct impact on making money. It is a cornerstone of success that defines whether the trader will keep afloat and become successful or not. Moreover, a robust and proper risk management strategy helps investors feel confident in the market moves and take precedence over their emotions which are usually considered as unwanted distractions.

When it comes to Forex risk management in trading, there are many rules, which also depend on the financial product you are interested in: stocks, futures, options, or Forex. However, there are two universal techniques to remember for any trader:

  1. Risk tolerance. It is a degree of risk that an investor is ready to accept. Risk tolerance plays a crucial role in the success of the trader since violent fluctuations of the investment value can cause panic and result in irrational decisions.

  2. One-percent rule. This rule implies that the risk on the investor’s live account balance is capped to 1% per trade or daily. For example, if the speculator has $10000 in his trading account and he limits the risk to 1%, it means that the max risk per trade or daily is $100. This practice is common among many Forex traders since it allows them to limit the size of the high risk to a particular maximum loss. The one-percent rule is very helpful in the long run. If investors suffer from a 30% fall they need much more time to return to their initial state in contrast to the situation with a 1% drawdown.

What to Do if You Lost Lots of Money?

The fact is that a great number of professional and new Forex traders lose money. Except for the poor Forex risk management, the most common reasons are:

  • low start-up trading capital;

  • aggressive fx trading behavior;

  • indecisive behavior;

  • panic;

  • lack of monitoring;

  • poor planning;

  • picking up only tops or bottoms, etc.

However, if you have already found yourself in such a situation, here are the steps to follow:

  1. Don’t panic. When losing part of the money try to concentrate and give an immediate and well-considered response to minimize further losses.

  2. Analyze your mistakes. Not only will it help you to understand what happened but also it will keep you away from losing money the next time. You should also understand that the loss can result not only from financial market analysis error or your emotional state. It can be just a matter of statistics. Noone can win constantly.

  3. Accept the loss. This stage will help you figure out what the true damage is so that you could develop a trading strategy to deal with it and move further.

  4. Recover. It takes time to recover from the previous failures. Don’t be in a rush, go back slowly. You can also try using demo trading accounts with fake money until you feel confident enough to return to normal trading.

Forex trading experience is always connected with losses. Thus, when suffering losses, it’s crucial to learn the lesson and consider it as a way to upgrade your skills and become a better professional. 

How to Calculate Risk Management

Calculating risks is an important practice in Forex trading that helps investors keep control over their losses and profits. Here is the formula that you can use to calculate your Forex risk management.

Risk management formula

Here’s the formula to calculate the maximum trade size considering your maximum Forex risk management capital and deposit:

Trade size = Risk capital / Price movement in points / 1 point cost per 1 lot

To use this formula, you need to determine three elements:

Risk capital: you should not risk more than 5% of your deposit per trade. For example, with a deposit of 10,000 USD, your risk capital will be 500 USD. You can increase the risk %, but your own risk level will rise, too.

Price movement in points: estimated price movement based on technical analysis or signals.

One point cost per 1 lot is calculated in the trader’s calculator for any asset. 

Let’s see how it works in practice. I am opening a proper position sizing in the EURUSD. My live account balance is 10,000 USD, but I can not afford to manage risk by more than 5%. So, my risk trading capital is 500 USD.

I understand that the currency pairs can move 80 points today based on analytical forecasts. I’ll set Stop Loss to 80 points to limit losses.

One point cost per lot is 1 USD — I have calculated it using the trader’s calculator.

Fill the formula with the values to calculate the maximum trade position sizing considering your own risk capital:

500 / 80 / 1 = 6.25 lots

So, opening a 6.25 lots trade in EURUSD (EUR — base currency, USD — quoted currency) and setting Stop Loss to 80 points, I risk a maximum of 500 USD.

Having calculated the position sizing you will always be able to successfully jump into any initial trading idea and know the exact amount of money you are going to risk.

Use trading calculator to calculate your correct position size and the price of point:

Forex Trading Risk Management Strategies

As it was already mentioned, profitable Forex trading is impossible without  risk management rules. There is a vast variety of strategies, helping investors generate considerable profits. In this article, we have gathered the most widespread of them that can be useful for both beginner and mature traders.

Educate Yourself About Forex Risk and Trading

Successful Forex trading requires continuous learning, analyzing, and monitoring. No matter how much experience you have there is always something new to explore. Fortunately, foreign exchange is a buzz topic, thus, there are a great number of related articles, videos, courses, and webinars.

Start With a Demo Account

A Demo trading account not only help newcomers gain basic experience in close-to-real trading conditions but also let professional Forex traders test their theories in any chosen trading platform. The only difference with a live trading account is that with a demo account the trader’s starting career is developed through a risk free environment. A demo trading account uses “fake” money and allows beginners to gain confidence in trading without losing much capital.

Use Stop-Limit Order

A stop-limit order has similar features to the stop-loss order, yet, there is a set limit on the price at which it will be executed. As it follows from its name in the stop-limit order there are two prices to be specified:

A stop-limit order is a good way to mitigate the risks while trading. The investor sets the limit price making sure that the stop-limit order will be executed at a limit price or better. However, this practice has its drawbacks as well: the trader may stay for long in a money-losing position size in case the order is not filled at all.

Taking Opposite Trade

Although opposite trading may seem an unreasonably risky behavior, it can be a helpful solution in Forex risk management. However, it’s crucial to have a thorough plan with stop losses, which will keep your risks small by default.

Don’t forget about the one-percent rule, which will not allow your losses to exceed 1-2% per single trade or daily and minimize the possibility of total failure to 0.

Position Sizing

Many traders implement stop placement but forget about their correct position size. Forex trading implies using higher leverage which can lead to drastic consequences with a wrong selected position sizing and losses that can exceed deposits. Appropriately chosen position sizing will not only minimize your risks but also significantly increase your profit opportunities. Here are some steps to follow:

  1. Decide on stop placement;

  2. Determine acceptable percent of the risk;

  3. Evaluate pip cost;

  4. Determine position sizing.

Set Take-Profit Points

Take-profit target is another pre-calculated price level used by traders to reduce your own risk level to make proper Forex risk management. If a stop-loss allows investors to automatically close such trades to avoid further losses, take-profit is a price at which the trader can sell the asset and take profit. For instance, if the asset is reaching a key resistance level after moving upwards, investors may want to sell it before the consolidation period.

The main advantages of take-profit order involve:

  1. Guaranteed profit. If your order is set correctly, there’s no doubt that you will raise more money while trading.

  2. Reduced risks. By executing a single trade as soon as the target price or a stop loss is reached will let you benefit from fast rises in the financial market.

  3. No hectic decision-making. Since every next trade takes place automatically, investors don’t have to make spontaneous decisions.

Take Currency Correlations Into Consideration

In the Forex market currencies are priced in pairs. Thus, to have improved control over your investment portfolio it’s crucial to be aware of currency pairs correlations. It means that one currency influences the other currency’s price.

The currency pairs correlation can be:

  • positive, which means that both coins in the currency pairs move in the same direction.

  • negative, which implies that currencies tend to move in opposite directions.

There are some tips to keep in mind while implementing Forex correlation:

  1. Don’t open position sizes that cancel out each other, for example, EURUSD (quote currency – USD) and USDJPY (base currency – USD, while JPY is a quote currency). In case both positions have a negative correlation, it will be the same as having no trading positions in your trading account.

  2. Don’t open any position size with the same base currency, for example, EURUSD, USDJPY, GBPUSD. If the quoted currency, in this example – USD, goes up or down, all your portfolio will do the same.

Learn more about correlation in our video training.

Don’t Risk More Than You Can Afford to Lose

The Forex market is highly volatile and unpredictable. Thus, one of the core principles is not to take more risk than you can afford. Too much risk makes your portfolio more vulnerable. Moreover, in case of a failure, it will be more complicated to recover from losses.

For example, if you had $10000 in your live or demo account and you lost $1000, the percentage of loss is 10%. However, to cover that loss you will need to gain 15% from the amount left in your live and demo account. As it was mentioned before, it’s better to follow the one-percent rule and limit the significant risk to 1-2%, so the recovery will not take much time and effort.

Limit Your Use of Leverage

Leverage in fx trading provides investors with both merits and drawbacks. It’s considered to be one of the most complex instruments of trading.

On the one hand, it allows speculators to open any position size that is much bigger than their initial investment. For example, if the leverage is 1:20 and a trader has $1000 in his account, he can open a trade up to $20000 without actually owning this money. 

However, on the other hand, the higher leverage also implies that the potential losses will be calculated using the whole amount of the asset, in our example $20000, which means that if the investor’s predictions are not correct, the loss may exceed the amount of his initial deposit.

The higher the leverage the more risk you are going to accept. Therefore, it’s reasonable to limit your use of such complex instruments to the minimum, especially if you are a beginner trader.

Have Realistic Profit Expectations

One of the reasons why many Forex day traders fail is their unrealistic expectations. They are in a rush to pick up the profits without having developed a clear risk management strategy and adequate trading behavior. An aggressive initial trading idea doesn’t necessarily mean making more money. Very often it conversely becomes the reason for huge losses.

Therefore, if you want to become a trader with a long term success, try to be realistic in setting your goals and approaches to achieve them. Moreover, a sensible mindset will help you deal with difficulties as well.

Have a Forex Trading Plan

A well-developed trading plan and strategy are two core elements of successful trading. Planning brings discipline into your trading behavior and helps you take complete control over emotions. A basic trading plan should include at least the following components:

  1. entry trading strategy (when you open the position size);

  2. exit strategy (when you close the position size);

  3. risk tolerance (the amount of risk you are going to accept for trade or on a daily basis).

Once you have your trading plan ready, follow it in every financial situation. It will help you avoid aggressive and emotional behavior and let you achieve better results in the long run Forex trading.

Control Your Emotions

Emotions distract investors from critical thinking. Fear, anger, anxiety, indecisiveness, recklessness, etc. can make you get off the pre-planned trail and lead you to unpredicted and devastating losses. 

High Forex market volatility should not impact your decision-making process. Thus, if you tend to be influenced by emotions, it would be reasonable to turn your focus to planning, which is the best solution in confronting unwanted decisions based on contradictory feelings.

Diversify Your Forex Portfolio

Diversification of the investment portfolio is a classic and one of the best strategies to manage risk. By having a diverse range of financial products you protect yourself against one market drop and ensure that one loss will be covered by other markets. Diversification can be of different types:

  • Diversification based on the asset types means that investors allocate their funds among different currency pairs, stocks, deposit retail investor accounts, etc.

  • Diversification according to the risk level implies that day traders distribute their investments between assets with different levels of volatility and risk. 

  • Institutional diversification suggests operating with different counterparts (an online broker, trust management, etc.).

  • Applied diversification is about using such distribution of investments between strategies with different risk management levels.

  • Statistical diversification involves positive and negative correlations.

General rules for money management

Whatever one may say, but money management is one of the crucial elements in speculation. You may apply the best trading system, make up a spotless trading plan, be responsible and sensible, but, if you don’t observe the rules of money management, you’ll never succeed. Beginners keep on destroying their retail investor accounts and opening new ones until they understand this simple truth.

1. You must have a clear trading plan 

You should also remember that a complicated approach is not always the best. The most difficult in trading is the right identifying of entry/exit points. Technically, it is very easy to enter a trade, you just need to click a button, and there you are, trading. But will you make any profit from it? Nobody can answer. So, you must know in advance, where to enter and where to exit a trade. As experience proves, it is more important to exit the trade correctly than to enter it. What percent of yield do you expect from a position size? What percent are you prepared to lose? You should answer these questions in advance, before you open a position size. Some retail traders open any position size and trade impulsively. Of course they will inevitably lose. It doesn’t matter how much they’ve increased their initial deposit, they will go bankrupt in the end.

2. Trade only high liquidity instruments

You must speculate only on the leading market moves of the assets so you will not lose money – the strongest in the uptrend and the weakest ones in the downtrend. It is true for commodities, stocks and foreign exchange. If you choose a strong base currency, you’d better pay attention to the euro, USD and yen. Weak currencies include “exotic” ones, for example, Mexican peso, Turkish lira or Polish zloty. Though, everything depends on a certain context. Sometimes, “third-rate’ currencies feature strength, and the developed countries’ popular currencies devalue. If a Turkish lira, for example, has risen rather much against the USD, it makes some sense to bet on its decline. In the stock market paradox, something expensive grows more expensive, and something cheap gets cheaper. It works in most cases, though, not always. When the stock market is bearish, you must find the securities that will be falling in price fast. Usually, companies in the technology industry or financial establishments fall in price very fast during a crisis. You can trade indexes, for example, the Dow Jones index, or rather its CFD. Precious metals may even temporarily rise in price at the beginning of a crisis, as retail traders look for assets to invest in. It was so in late 2007-early 2008, when gold and silver prices were growing despite the stock market crash. However, it continued only for a few months. During a crisis, almost everything is getting cheaper. But gold was one of the first to start increasing in market price. That doesn’t mean it will be the same during a new crisis.

3. You should trade only at strong pivot points

You mustn’t enter a trade just because of boredom. Beginner individual traders may gain two or three dollars just not to stay doing nothing. This approach can result in a very difficult situation, when an account features a big loss and the risk reward ratio is extremely low. How do you identify pivot points in the chart? Some traders look for them by means of indicators and oscillators. Surprisingly, both groups make profits applying different approaches to the business. A strong pivot point is a new bullish stock market. But how do you know, whether it is just a new price jump before the fall or a new bullish market? It is a kind of art. Not everybody will master it even with life-long experience.

4. You must avoid trades in too short timeframes

Of course, there are short period trading strategies, fore example scalping, but there are very few successful scalpers. It is much more reasonable to expertise position trading. Speculators can succeed in the middle-term trading either, but not everybody will. Advanced traders recommend taking profits, not less than 10 times more than your commission costs for one trade so you will not lose money rapidly. So, you’d better open a position in the long-term or middle-term trend. It is stupid to seek to earn from any market move.

5. Buy cheap, sell expensive

Besides, you must remember that the price can move anywhere. The entire market moves analysis just increases your chances for success, but never guarantees it. If anybody tells you about a kind of trading Grail, do not believe it. It just can’t exist. If it existed, there wouldn’t be any trading at all. But still, there are new trading strategies, which promise guaranteed profits, appearing from time to time. Anyway, start your trading career by testing these approaches on demo accounts on a trading platform before you start using them in real trading.

6. You must apply stop loss to trade safe

Yet, a stop loss order won’t necessarily drive you to financial victories. Your trades may be closed by stop losses all the time, destroying your account very fast. Some traders put stop loss orders relatively far from the position, so that the price won’t reach it very fast. Others put stop loss rather close to the entry point. Some speculators don’t use stop losses for one position during pyramiding, but always put them for all the rest of their trades. This stop loss approach can be quite profitable and ensure a good risk reward ratio, if you trade with small volumes.

7. In successful trades, you should let the profit increase

You should close the position only if you clearly understand that the trend will end soon. Beginners do the opposite: they take a small profit target and let their losses increase for a long time. For example, they take the profits of about $5-$10, but don’t close the losses of $50 -$100. Of course, you’ll never succeed with such an approach.

8. You must keep your free margin quite large

Don’t wait until your position is closed by the margin call (forced by the cfd broker). You shouldn’t make rash decisions, based on emotions and lose money.

9. Use risk diversification wisely

Sometimes, seeking risk diversification and opening multiple different positions is a try to improve the risk reward ratio and protect the capitals. But that is not always so. Traders often get multiple problems instead of a single one. You can solve one problem, but it is far more difficult to settle down multiple troubles. In more detail, in the strong bullish equity market, you can buy 3-4 different securities, and add more, as the price grows. But when trading Forex currency pairs, this approach is always loss-making. In the stock market, a moderate diversification is good, but an excessive one is dangerous.

10. Do not make an important decisions at the end of trading session

It is unreasonable to take trading decisions at the end of trading. For example, on Friday, before the weekend, or at the end of the stock market trading session. Some traders, on the contrary, wish to gain on the market possible surge at the opening; but it doesn’t give you any advantages over the market. So, it can’t be profitable.

11. Improve your skills both in technical and fundamental analysis

Trading success 9/10 results from a speculator’s analytical skills; so, you need to study, improve your skills both in technical and fundamental analysis. Most traders apply both types of analysis. There are some traders, who prefer only fundamental or technical analysis. Some speculators don’t even monitor the charts. They just learn the price from their assistance and make their decisions. They claim that charts are confusing.

12. Keep a trading diary

You should keep your trading diary to write down the mistakes and good decisions, to analyze your future performance. You don’t need to do it if your memory is perfect. You’ll just be wasting your time, if you already remember everything. Or, you can describe some of your trading situations, the most interesting ones, without keeping everyday records. It is remarkable that traders, who train beginners, write books on trading, are more successful than those, who don’t share their knowledge with anyone. If you repeat a hundred times that one mustn’t do something, you won’t do it yourself.

13. By increasing the trading volume you increase the risk

When start trading, the more the volume is, the more profits will be earned, but the risks are also higher.

Professionals say, your loss shouldn’t be more than 2% of your deposit a day, and more than 10% a month. It makes some sense to cut your losses more, for example, to 1%. Of course, this good rule works only provided you trade a comparatively large amount of money. If you trade 10 dollars, you shouldn’t take the loss of 10 cents. Anyway, there is hardly any point in trading 10 dollars.

14. You should make a pause after a series of losing trades

How many loss-making trades do you need to face before you take a break? Some will give up on trading after three unsuccessful positions, others will continue despite five consecutive losing trades. Much depends on your trading tactics. There are a lot of them and many will be efficient, provided you apply them correctly. A trading strategy can be good for one trader, but for another one, it will be dangerous. There are common rules any trader should follow. But there are also the rules, important for some traders, and completely useful for others. Everything depends on the way a trader precepts and processes information.

15. Make up a trading plan

It must be clear and concise. If you start to complicate it, you’ll definitely fall into the market’s trap. What market are you going to trade? Foreign exchange? Stocks or commodities? Why this one, not any other one? Why don’t most traders want to trade in this market? What do they know that you don’t? Maybe, you know nothing at all? Then, you’d better read some textbooks. You won’t fight with a professional wrestler without proper training, will you? Why do you think, the market will give you money so easily? Beginners often trade without any Forex trading plan. They do what they like. But in the market, you must do what you should, rather than what you like. And that is far harder. Most traders lose their capitals in the market. Answer the question: why are you better than the majority? What do you know that others don’t?

16. Don’t enter or exit too often

If you open and close the position too often, you’ll fail. Sometimes, aggressive trading can yield some profits. But even then you should keep some distance between entries or exits. Your next trade must be promising to yield. At least, the chances for success should be high. In the strong bullish equity market, you can enter many trades, using safe pyramiding. As a general rule, this trading strategy works during the first two years of the bullish market moves, then it gets slower.

17. 1:2 – lose 10 dollars, gain 20 dollars

It could be a good trading strategy, but not always. Some speculators are satisfied with smaller profits, others want more. A lot depends on the market, you trade. There are traders, who think that a proportion makes no sense.

18. Don’t go against the trend

Trend is your friend for your trading future performance. At least, most professionals say so. In some cases, you can go against the trend and gain. But this approach is rather risky. Dissident traders, who act contrary to the majority, can trade against the trend in Forex. Some of them claim that it’s the only way to take over the market. But one can hardly succeed without proper training and certain natural skills. The traders, who have certain necessary personal features, can trade contrary to the majority.

19. Don’t try to guess where the trend will reverse

In most cases, you will fail. Analysts try to find out the pivot point by means of Elliott waves, different oscillators and indicators. If you read trading journals, you’ll make sure, the experts can’t identify pivot points in most cases. Don’t waste your time on this. You don’t have to always hit the bull’s eye, you need to get a high score when you shoot. To hit the target, you need to shoot correctly, rather than just to wish to. The same is in trading.

20. Never use averaging

It will ruin your trading account. Moderate averaging can be safe for traders for a while, but they will certainly end up with big losses. Averaging for sales in the bullish stock market or in Forex currency pairs is especially dangerous.

21. Save what you gain

Have you earned some money? Do you think you risk only the profits, not your own money? Believe it isn’t so. The money earned is yours. And you should respect it. Learn to respect your money. Even if you don’t need it, don’t waste it in the market. You should exit the trade, when its yield is rising, not decreasing. That is when the financial elevator is moving up, not down.

22. Never trade at night

Market won’t disappear anywhere. But your money may. You will have enough opportunities to trade. People should sleep at night. If you are a “night bird”, you can stay up late, but not too late. You should have enough sleep. Trading is, first of all, psychology. And your mind will be productive only provided you have enough rest.

23. Live an active life

You mustn’t just sit in front of your computer all day long. Go to the gym. Speculators especially benefit from sport games. You must focus on something else too. You may go to the swimming pool, ice rink, water park and so on.

24. Take big profits in small parts

You wish to turn 100 dollars into 1000 dollars. You need to divide a big task into a few smaller ones. The first rule is to increase your capital up to 200 dollars, next, to 300, and so on. It doesn’t mean, you should risk your $100 right away. It is possible to turn $100 into $200, next, into $400, and then $800, though it’s quite hard. The chances for success are very small. Professionals never risk so much.

25. Trade the instruments you know and understand

Do you have any experience in trading? What market do you prefer? If you are interested in commodities, select those, whose price moves are easier to predict. For example, if you are an expert in the gold market, trade this precious metal. If you have been trading securities for a long time, work with them.

26. Choose a proper financial leverage

Many brokers offer high leverage of 1:100, or even 1:500. It doesn’t mean, you should use the maximum leverage available. The financial leverage of 1:10 and 1:20 is used in the stock market. In Forex trading, it is usually 1:100. If you trade at full power, you’ll soon lose all your money. However, traders may get bored with a little leverage.

27. Accept losses easily

To accept losses easily, never let them be too big. Take small losses with a smile, but seek big profits. Traders often use pyramiding in the equity market. It can generate quite a big profit. To do it, you need to open positions, one after another, and don’t forget to put stop orders at the breakeven level. But you should be prepared to put up with multiple zero trades, and even losing ones (due to the gaps in the market).

28. Automated trading

Does it make any sense to apply automated trading? Based on the answer, traders are divided into two groups. Some traders think it’s better to avoid robot-traders at all. Others apply robots to some market segments and are quite happy. It seems you can use automated trading, but very carefully. When trading cfds, pairs, etc using robots have some advantages over humans. They don’t need any rest, free time, leisure activities, lunch breaks, and so on. In addition, computer software can’t feel any emotions, so it never suffers from nervous breakdowns. But, who designs the software? Humans. And they are not necessarily experts in trading. As a good rule, they are computer programmers, who are good at exact sciences that are not so important in the market. It is psychology that is important. Computer programmers are usually bad psychologists, and vice versa.


High risk is inevitable when you start trading in the Forex pair market. It can be higher or lower, according to the person’s character and ability to accept high risk, however, it’s impossible to avoid it. Therefore, an effective and proper risk management strategy that will provide you with better control over your profits and losses is a key element in becoming a successful trader. 

With the help of the strategies described above, you should develop your personal one that will comply with your goals and personality traits. The main points to remember are to be realistic, never to panic, set stop losses, conduct systematic monitoring, and follow the Forex trading plan based on market analysis.

Forex Risk Management FAQ

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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