Techniques for Lowering Your Risk in Foreign Exchange Trading

Trading forex over the internet is rapidly becoming one of the most common ways for people in Africa, particularly younger people, to put their money to work. This phenomenon is especially prevalent among younger people. It requires only a nominal fee to enter, may be accessed at any time of the day or night, and can be accessed through mobile devices in addition to desktop and laptop computers. Everyone who owns a mobile phone and has ten additional dollars to spare is welcome to take part in the activity. Visit multibankfx.com

However, forex trading is a kind of high-risk speculation, and depending on the Forex broker that a trader uses, anywhere from sixty percent to ninety percent of traders will end up losing money. Most traders are not successful financially because they do not have a risk-management plan that restricts their losses to the greatest extent possible and limits them to the greatest possible extent.

Even though it takes time, education, and patience to build a solid risk-management approach, there are a few basic techniques to lessen the possibility of adverse consequences.

Make sure your broker is properly regulated.

This may appear to be a no-brainer, yet a significant proportion of novice investors put their money with unregulated brokers or fall victim to fraud in the foreign exchange market. Be wary of anybody claiming to be “Forex experts” or brokers that approach you over social media and promise guaranteed returns. At the very bottom of their websites, all well-regulated brokers will include a list of their licenses, and it will take you no more than a few mouse clicks to confirm that these brokers are in fact regulated by the appropriate authorities. Negative balance protection is another feature that you should look for in a broker. This ensures that you will never lose more money than you have in your trading account.

Put your game plan to the test with a sample account that has no limits.

Demo accounts are available from every forex broker, and their functionality is identical to that of actual trading accounts, with the exception that the funds in demo accounts are fictitious. Most reputable brokers provide a practice account that never closes. If you have access to an unlimited demo account, you will be able to put your skills to the test and put what you have learned into practice without having to worry about losing any money.

Maintain a low level of leverage.

When you first start trading with a live account, it is necessary for you to be aware of the leverage that you are utilizing, since this will significantly affect the outcomes of your trades. While it may seem like a good idea to multiply your trading capital by 1000 or 2000, the effect of leverage also applies to compounding any losses that you make. Some brokers offer leverage of 1: 1000, while others offer leverage of 1:2000. 

While it may seem like a good idea to multiply your trading capital by 1000 or 2000, this effect also applies to compounding any losses that you make. Some brokers may provide a leverage of up to 1: 1000, while others would go as high as 1:2000. It is strongly suggested that you begin with a maximum leverage of 1:100 until you become accustomed to the effect that leverage has on your trading and feel comfortable increasing it.

Dealing with the Big Players

All the following currency pairs involving the US dollar are considered to be “major” forex pairs: EUR/USD, USD/JPY, GBP/USD, and USD/CHF. These are the most actively traded currency pairs in the world. These two things tend to be the most stable together. Most brokers will also provide “minor” currency pairs and “exotic” currency pairs, such as the Euro and the Turkish Lira (EUR/TRY) or the Australian Dollar and the Mexican Peso (AUD/MXN). These exotic currency pairs have a higher standard deviation of price action, which means that your trading costs will be higher than with majors.

Steer clear of cryptocurrencies.

A sizeable proportion of Forex brokers will also offer cryptocurrency contracts for difference (CFDs), such as BTC/USD (which stands for Bitcoin against the US Dollar). Due to the widespread perception that cryptocurrencies are notoriously volatile, leverage is typically kept at a very minimal level when dealing with cryptocurrencies. However, the price fluctuations in cryptocurrency pairs can be enormous and unpredictable, and the risk of “wiping out” your forex trading account is significantly higher than it is when dealing with standard currency pairs. This is because cryptocurrency pairs are more volatile than standard currency pairs.

Make use of a reliable copy trade service.

There are a lot of people who are just starting out who don’t have the time to watch the markets all day. To our great fortune, a good number of brokers offer copy-trading services. Copy-trading brokers give inexperienced traders the opportunity to “copy” the transactions of more experienced investors in exchange for a tiny commission deducted from the profits of the copied trades. Most copy-trading brokers will include a breakdown of each experienced broker’s success rate, risk profile, and maximum single loss; this enables beginners to copy a trader who meets their needs and maximizes their potential for profit.

Always implement a stop-loss strategy.

A stop-loss order should be placed on every trade that you open. This is the last piece of advice for avoiding significant losses while trading forex. Once the price reaches a level that you have determined in advance, a stop-loss order will cause your transaction to be closed automatically. It’s human nature to hang on to a losing trade in the vain hope that it will eventually turn a profit. Sadly, this is not the case most of the time. A trader’s stop-loss order is one of the most powerful tools in their toolbox since it has the potential to either prevent a poor deal from completely wiping out their account or lock in a tiny profit.

The crux of the matter

In conclusion, as was mentioned at the beginning of this post, developing a risk-management strategy requires time, education, and experimentation (of course, with a demo account!). However, the guidelines will lay a solid foundation for you and prevent you from losing your shirt during your initial forays into the foreign exchange markets.

Leave a Reply

Your email address will not be published.