How to reduce your risks

Forex is continuously gaining popularity among people interested in the financial markets. However, every trader fears losing money. Learn how to avoid losses in 4 simple steps.

The Forex market is easy to access. With round-the-clock sessions, and brokers competing for traders by offering great trading conditions, Forex is continuously gaining popularity among people interested in the financial markets.

Access to competitive trading conditions and relatively low costs often means that people do not take precautions when starting out.

We understand that the market is highly popular and desirable to get into, but risk management is vital and should be an integral part of your Forex trading experience.

Here are four simple pieces of advice that will help you avoid losing money.

1. Learn and test before you invest

Nowadays too many traders take a wild west approach to trading. And it might work for a while, but when it's over, it's really over. That’s why you should consider opening a demo account and learning how to adapt to changing market conditions. Practice your strategies, backtest, formulate long and short-term objectives. In general, learn everything possible about Forex, including economic factors that might affect your favourite currencies. Remember that practice makes perfect, so don't be afraid to experiment before placing real money on the line.

2. Don't be an overachiever

Do not spend money you can’t afford to lose. Risking your capital, thinking "that won't happen to me", can affect your trading performance significantly. It's better to start small when going live, and trading what you are safely able to trade. Remember about leverage and reasonable lot sizes to prevent major trading disasters from happening.

Treat your trading experience like a business and always stick to the plan. Don't go all in on a trade just because you want more! It is unlikely you'll become successful overnight. Set realistic goals and stay organised, and remember to learn from both successes and failures.

3. Wise trading setup

Once you have an insight into Forex trading and a strategy in place, it’s important to focus on aspects such as leverage, timeframes, economic calendar, etc. Even the smallest detail can impact your trade if you’re not careful. Make sure that you know the specifications for each trading instrument. Hence, leverage requirements and contract size may differ. Know what you’re up against before you enter the market.  

Do not use volatile charts. Longer timeframes provide more clarity as to your trading plans. Also, trading on short-term charts increases the possibility of slippage.

Remember to check the economic calendar. Hardly a day goes by without some financial announcement or other. The biggest ones should always be treated with caution. High impact events and surprise announcements can send markets into a tailspin. If you do not have the necessary expertise, you should avoid trading big economic news, as news trading involves higher risks.

Keep your charts clean. Do not overuse indicators of the same kind, as they might give you false signals.

4. Use stop loss

And last but not least, always use pending orders, such as stop loss. Experienced traders will tell you that it doesn't matter when you enter the market, you'll still be able to make money. What's important is how you exit the trade. Hence, let's expand on using stop losses. They should be set to close trades that have gone terribly, terribly wrong.

Many traders place their stop too close to their price. Murphy's law says it's going to get hit! Use a protective stop loss wisely, as it is an effective way to make sure that losses remain reasonable. But treat it as your emergency exit.

We hope that these simple steps will help you avoid unnecessary loses. When you approach Forex trading well prepared and knowledgeable, it can be highly profitable and rewarding, so be prepared, stay organised, continue learning, and approach it as a business.