Is Forex Trading Really That Risky?

by Danielle Franklin - Date: 2010-09-13 - Word Count: 530 Share This!

You have most likely heard or maybe even experienced the risks involved in forex trading. It is not only important to realize that there are risks, but most importantly understand ways to stay out of danger. Is forex really that risky? How to keep your money secure while trading? What is the right way to trade?

Yes, forex trading is risky; we all know that by now. But let me ask you something - what isn't risky? Can you come up with one triumphant business that doesn't have any aspect of risk involved? Do all companies work tip top without crash? Are stocks a piece of a cake? Do people never lose their jobs? Do you really know what you will be doing tomorrow?

Risk is everywhere and, just like we carefully cross the street at the junction or go over the business plans with our associates on Monday mornings to avoid pitfalls, we have to learn how to control the risks in trading.

How do you manage the risks?

1. Broker

First of all, you have to find a trustworthy forex broker, because you will reply on your broker and its trading platform more than you can even imagine. Carefully pick a broker to trade with - check its history, read reviews, ask around in forums and blogs; shortly, do your homework! This is the only way to avoid scam. Be ready to pass over several bad brokers on the way. You might even lose money while choosing the right broker. All of this is common and worth it, because at the end you will find a broker that will be your colleague instead of a rival.

2. Stop Loss

Second significant thing to know and use is placing stop/loss orders while trading. This is a critical defense against volatile market and serious loss of money. The last thing you want is a margin call and an automatic shut down of your trade. Don't give a chance for horrible surprises and 0 balance in your trading account.

3. Leverage

Moreover, pay attention to leverage. While some brokers offer a mouth-watering leverage of 1:500 and more, make sure that you understand the risks involved with such overwhelming ratio. Why do brokers like high leverage? Simple - the higher the leverage, the more spread (aka payment) for the broker.

The dilemma with high leverage is that while there is a chance of bigger profits, there is also a high chance of considerable losses. You have to be in charge of your wealth. Don't gamble, don't try to guess, don't look for trades that aren't there and stick to your risk management plan.

4. Currency Pairs

Another tip is to avoid trading many currency pairs at the same time. As a beginner, it is required to concentrate on one pair - learn all about it, follow the news releases of the countries involved and read technical analysis on a regular basis. There is absolutely no need to rash into something you cannot handle. Make the most of one pair before you choose to include another.

5. Trading Plan

How exactly why and when to enter a trade. Explain out loud your motives to enter a certain market formation. Stay disciplined at all time and avoid overtrading. Remember that greed is your worst enemy!

Related Tags: forex trading, trading plan, currency pairs, trading platform, high leverage, risks involved, trading account

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