Risk, something that people either love or hate, it is something that is there in everything that we do, every single day. When it comes to trading there are of course a lot of risks, the majority of the risks that we put ourselves under are in relation to the money that we have put into our accounts, there are, however, a number of different risks including those to our health and more importantly mental health. There are many different things that you can do when it comes to trading to help mitigate some of the risks, and when you have negated some of the risks you will also open the doors to better profits, so we are now going to be looking at some of the things that you can do to help reduce the risks that you are taking for a hopefully more safe and consistent trading experience.
One of the things that are being pushed out a lot in advertising and by various social media influencers is the leverage that you are able to use. To put things simply, the higher the leverage that you are using, the higher the risk that you are putting onto your account. Think about it, if you have $100, and a leverage of 100:1, this means that you will be trading with $10,000, you will be able to place larger trade sizes up to example 0.10 lots. But if you had leverage of 1000:1 you would be trading with a balance the equivalent of $100,000, allowing you to put on a trader of 1 lot. If the markets move a single pip in the wrong direction. With the 1000:1 account, you will lose $10, with the other $1. So it will take a much smaller movement for the account to blow on the 1000:1 account than it would with the 100:1 account, so keeping the leverage at a sensible level will limit your trade sizes but at the same time help to protect your account from bigger losses.
Stop losses, use them, their functionality is in their name, they help to stop further losses, they are one of the primary tools that you can use to help prevent losses and to protect your account. Stop losses are incredibly easy to implement when placing a trade. You can input the stop loss at the same time, the way it works is simple: you set a price in the market, if the markets fall down to that level, then your trade will be automatically closed. It is a fantastic way to protect your account, especially if you are not able to sit at the computer, it will allow you to walk away knowing that your account is still safe, even with a loss. Your trading strategy should have a risk to reward ratio built into it, this is the loss site of that ratio and ensures that your trades remain within your strategy, it also helps to take awesome of the psychological stress away from the trades, as you have already decided what the maximum loss is and so do not need to stress when deciding whether or not you need to close the trade or not.
Volatile conditions can be amazing for your profits, but also for your losses. Trading during times where there is a lot of volatility can make things a little more risky to your account, this is mainly due to the fact that the markets and the prices will be jumping up and down quite a bit more as well as there being higher spreads from the brokers. Trading during these moments can help you to produce some incredible profits, but there is also the risk, putting on stop losses during these times would be vital, but when there are huge amounts of volatility, the markets could actually pass through those levels for greater losses, so it is often a good idea to simply avoid trading during these conditions in order to remain safe.
Try to limit the amount that you are trading with each trade, if you are only risking 2% of your account with each trade, then you will be able to survive quite a few losses in a row without putting your account in danger. This can be limited through the use of stop losses that we mentioned above as well as limiting the trade size that you are using. Being able to limit the losses with each trade is one of the fundamental parts of a risk management plan. Of course, you will still need to put the proper analysis in motion in order to put on your trades, just because the account is protected from larger losses does not mean that you can simply put on any trade that you want, this will ultimately lead to losses.
Another option that you can use is to use a higher time frame of chart. Doing so will enable you to take slightly longer-term trades and to better view what trends are taking place. The higher p the time frame is on the charts, the longer term that you are looking to trade for, this also means that you will be putting in smaller trades and holding them for longer. When you trade on a lower time frame, you will be looking for quicker profits, so the trade size will be larger to make it more worthwhile, but you will only hold the trade for a short period of time. So a way of limiting your trade size is to trade on the target timeframe, the profits can be just as big, they will just come a little later down the line.
Those are some of the things that you can do to help overcome some of the risks that come with trading, there are of course some other things that you can do too, you should always be looking to help improve your own risk management and to protect your account, how you do it is up to you, but take some of what is written here and you will be on a good path in order to protect your forex trading account.