What is forex risk management?
Forex risk management enables you to apply some rules and measures to minimise any negative impact of a forex trade. An effective plan needs some proper planning from the outset since it’s better to have a risk management strategy in place before you actually start trading.
Following are the most effective forex risk management strategies:
- 1. Understand the forex market
There are three various types of forex market:
- Spot market
- Forward market
- Futures market
- 2. Get a grasp on leverage
- 3. Build a good trading plan
- 4. Set a risk-reward ratio
- 5. Use stops and limits
- Normal stops will close your position automatically if the market moves against you. However, you have no guarantee against slippage
- Guaranteed stops will always be closed out at exactly the price you specified, eliminating the risk of slippage
- Trailing stops will follow positive price movements and close all your position if the market moves against you
- Limit orders will follow your net profit target and close your position when the share price hits your chosen level.
- 6. Manage your emotions
- 7. Keep an eye on news and events
- 8. Start with a demo account