In foreign exchange everything is about the risk. The possibility of earning money is what makes this game so interesting. The possibility of losing it, on the other hand, fills trading with adrenaline. In this article we’ll talk about forex risk management. We’ll discuss how much money you need to start trading, how much you should invest and how to survive periods when you’re not doing as planned!
Forex Risk Management | Education
Let’s make this clear at the beginning: most businesses fail due to undercapitalization, and the forex industry is not an exception. In other words, you need money to make more money. Every trader needs trading capital. How much money you need depends on your personal approach. However, there are a couple of things we would like to consider in this paragraph of our Forex risk management analysis.
First of all, education. If you’re a newcomer in the field, you have to learn a few things about the foreign exchange market and trading in general. If you don’t want to pay mentors or you simply can’t afford one, you can always look for some useful Forex Tips and Tricks online. There are many forums and sites where you can find information for free. On the other hand, if you decide to pay for education, it can shorten your learning curve big time. Besides for education, some traders pay for some trading tools that don’t come with their brokers’ trading platforms.
Forex Risk Management | Losing Streak and Capital
When it comes to the trading capital, you have to accept the fact that losing money is also a part of this game. With many traders you can open your account for less than 1,000 USD, but we advise you to save up as much as possible in order to avoid the undercapitalization trap.
As we’ve mentioned earlier in our Forex Risk Management analysis, losing money is also a part of trading. There’s no trader who can win every trade. Also, there’s no trader who can avoid having a losing streak. The most important is to withstand periods of large losses, which is possible only with a good Forex trading plan, also known as your forex strategy.
Also, let’s mention that you shouldn’t risk more than 2% of your trading capital per trade. Even this percentage is considered to be quite high, especially if you’re a beginner. That’s how you’ll always stay protected from losing a big amount of your capital at once.
Forex Risk Management | Conclusion
Forex risk management is crucial for every trader. First of all, we advise you not to start trading if you don’t have enough money. Instead of entering the foreign exchange world with small funds, you should rather save some money and begin with a bigger fund. Besides that, you should have a trading plan that will help you survive bad trading periods and you shouldn’t invest more than 2% of your trading capital per trade. To learn more about handling your money, read our other educational articles here.