Risk management plan of forex trading

[gann fx]

Just like any other business, Forex trading is also not free from risks. The main risk of Forex trading is the loss of some or all of the funds invested. The bigger funds are invested, the greater risk is faced. However, with proper risk management plan, loss can be minimized and profit will be maximized. What are the risk management strategies that can be applied in Forex trading?

The first strategy is cut loss. Cut loss is a risk management plan by closing the position which is opposed to market prices.

Cut loss is used to limit the losses so trader will not get greater losses. This method is usually used when prices are moving against what is expected. At that time, the trader must be smart at determining how many points he has to cut loss according to its ability to accept losses. Cut loss is a more prudent way than constantly bear the loss and eventually suffered a margin call.

The second strategy is hedging or locking. Hedging or locking is one of the risk management plan by adding a new position which is in line with the market when the trader has an open position against the market. This is to avoid greater losses. The next is averaging. Averaging is the opposite of locking. Averaging is used when a trader has an open position that is in contrary to the market and when the market starts heading to the opposite direction, the trader adds the same position. This is used in hope to get double profit.

And the last is switching or turnover. Switching is a risk management plan similar to cut loss.

The difference lies in the steps of taking new position in line with the movement of the market after closing the losing position. Those are the four risk management plan that can be used by trader to prevent himself from the big loss in Forex trading. By choosing the proper risk management of transaction, it is expected that success can be achieved too. Good understanding and experience in Forex trading is also supported.


Source
http://fxadd.com/risk-management-plan-of-forex-trading/

great...

 

[chintu]

Yes i agree with you my dear friend the forex trading involves very much risk and it is not risk free there are many chances to earn lots of money in trading and at the same time there are many chances of loosing the money also . and they is very much risk involved in this . but all you can come across with good knowledge and practice

 

[kasual]

nice article and its true that every trader should know their system ability to make risk reward ratio calculation. we will not set high risk reward ratio if winning probability of our system only 60% for example. we will never know the future of market, set a risk management plan is very important to cover us from worst situation.

 

[rexway]

[MENTION=406]chintu[/MENTION] you are right the forex market is bind with risk so the best thing for us to do is to apply proper risk management strategy otherwise we are going to loss all our hard earn money.

 

[anuj7]

Control is important in Currency trading dealing, but when you start to get selfish, your money management can fall apart. This is because selfish currency traders are typically inconsistent with their dealing and lack discipline, since they fail to follow their Currency trading dealing plans.

 

[rexway]

How can a trader be selfish in this risky forex market instead of trading with good money management you then ignore it and start trading with selfishness this will lead you to nothing than loss upon loss and the only thing you will get is disavantages in ever been into trading.

- - - Updated - - -

How can a trader be selfish in this risky forex market instead of trading with good money management you then ignore it and start trading with selfishness this will lead you to nothing than loss upon loss and the only thing you will get is disavantages in ever been into trading.

 

[garryjohn258]

I think the lack of knowledge is main point for risk of loss in forex trading. You should have very good knowledge to prevent from the risk of loss.

 

[nahid]

Control is important in Currency trading dealing, but when you start to get selfish, your money management can fall apart.You should have very good knowledge to prevent from the risk of loss.Risk management is very essential for a trader to survive in Forex.

 

[kasual]

selfish is like trading with the plan and strategy but ignore it. if that case happen, traders need to understand that stick with their plan and strategy more important than choose to break it. well, okay sometimes we need to break it if situation is necessary. but if always break our plan and strategy, the best result will never came up.

 

[mohsin01]

They is very much risk involved in this . but all you can come across with good knowledge and practice .nice article and its true that every trader should know their system ability to make risk reward ratio calculation.Control is important in Currency trading dealing, but when you start to get selfish, your money management can fall apart.

 

[PROPENSITY100]

No matter how good we become in Forex we cannot make Forex risk free and remove losses from it. Even after becoming pro traders the chances of losses will always be there and that's why money management and risk control is very important in Forex. In addition to earning good returns on his capital, a trader should also focus on the safety of his capital.

 

[budado]

I'm just wondering if anyone can advice to me a good book title and author for risk management. Please not an ebook or a site. I want a real book. A hardbound book that I can buy. I do like to collect some books about forex. I do hope that in the long run I can say that I can be successful in life if I have a book of my own.

 

[Nazmul01]

Risk management is very important in Forex market because Forex is always risky.So if you haven’t risk management plan you will suffer problem.

 

[riddick09]

Most common use of risk management will be in the stop loss or cut loss. Other means can be not directly in the trading but also in the investments. We will not going to invest all of the capital and just going to have part of it invested in an account or in a Forex broker as means of risk management.

 

[sindarin]

Risk management is very important in Forex market because Forex is always risky.So if you haven’t risk management plan you will suffer problem.

That is why we need to learn of it, High risk business like forex needs better risk management plans, and actually there are so many common risk management that we can use in terminal already, i think there are some materials in internet which talk about this thing, and it is easily to find, but to practice it, will be so hard.

 

[kasual]

After loss 200-300 pips and our account not decrease much, it meant we are apply good risk management plan. its my own view and I guess every trader have different view about proper risk management plan. there is no exact rule in making risk management plan because every trader work with different strategy and goal.

 

[riddick09]

That's huge loss of pips if you ask me. This mean also that you should have apply at least one way to have the risk management. Stop loss will be the best if you can't have control on manually cutting your losses. I really think that it's difficult already to recover from 200 pips in loss.

 

[Markllee30]

Very nice risk management post. I find this post very helpful for my forex trading. I will surely take care of this points while doing trading.

 

[riddick09]

If you want to trade with the risk management then, you should have try it first before you can go with the results of your trades or with this risk management. Just the stop loss will not enough but also to have the take profit whenever we have put S/L.

 

[sindarin]

After loss 200-300 pips and our account not decrease much, it meant we are apply good risk management plan. its my own view and I guess every trader have different view about proper risk management plan. there is no exact rule in making risk management plan because every trader work with different strategy and goal.

with stop loss and take profit is good enough, i think for the first time you can do it and it will helpful too, and i am sure with better risk management that you do for your trading later i am sure you can earn better profit, but if you wanto to go advance then you can trying to make some experiment with yours.