Managing Risk

Forex Risk Management

The application of strong forex risk management principles requires equal parts planning and discipline. In this tutorial, you will learn how to identify, quantify and manage your risk exposure in live market conditions.

Building The Forex Trading Plan

No matter what type of trader you are, the first step in eliminating unwarranted risks is building a forex trading plan. A trading plan removes the guesswork from market entry and exit, as well as risk management. Simply put, it is the single most valuable tool in the successful trader’s arsenal.

A strong forex trading plan governs the three fundamental areas of trade: market entry, market exit and position management. Without structured guidance in these departments, performance largely becomes a product of chance.

Learn How To Develop Your Trading Plan

Introduction To Order Types

Orders are a vital part of any forex trading strategy. They are the mechanism by which the market is engaged and trades executed. To optimize for efficiency and ensure your best chance of forex success, it’s critical to select the ideal order type for the job.

Understanding Order Types

Using Order Types to Manage Risk

It is important to remember that each order type has a unique functionality and is designed to complete a specific task. Market, stops and limits are the most basic order types, and trailing stops and OCO orders are more advanced. When utilized in the proper fashion, each of these order types are valuable tools for managing risk.

Learn How To Use Orders To Manage Risk

Risk Management Strategies For Forex Trading

Addressing risk in live market conditions can be a monumental undertaking, especially if you don’t have a plan. However, there is good news, because many battle-tested forex trading risk management strategies are available to help boost your bottom line.

Risk Management in Six Steps

Turning Risk Into Opportunity With A Volatility Trading Strategy

The term volatility refers to the variance of a series of price points from a baseline value over a given period. Wide trading ranges and robust price action are two characteristics of an inherently volatile security.

The scheduled release of official economic reports, breaking news items and central bank policy statements are several drivers of participation to the currency markets. Given a proven volatility trading strategy, the super-charged price action can be a catalyst for great trading opportunities.

Tips for Trading Volatility to Create Opportunity

How To Manage Risk In Forex Trading: Understanding Leverage

To understand how to manage risk in forex trading, you must fully acknowledge the role that leverage plays on a trade-by-trade basis. As the number of lots relative to an open position increases, so does assumed leverage. While enhanced leverage certainly augments profit potential, it also boosts risk.

A reckless use of leverage can undermine the viability of any trading plan. When position sizes are too large, margin calls and account liquidations come into play. If you want to learn how to manage risk in forex trading, understanding leverage is a smart place to start.

Understand Forex Leverage to Manage Risk

The Value Of A Forex Trading Risk Calculator

To properly account for risk, it must first be quantified. FOREX.com’s Margin Pip Calculator furnishes traders with a user-friendly interface designed to quickly tally risk. Simply choose your currency pair, margin and contract size, and the forex trading risk calculator does the rest.

Forex.com's Pip & Margin Calculator

Forex Risk Management Tools

Risk management is all about executing positive expectation trades while using leverage responsibly. The following forex risk management tools can help you complete this task:

  • 2% Rule: This strategy states that between 1% and 3% of the trading account balance may be put into harm’s way on a single trade.
  • Risk vs Reward Ratios: Guidelines vary, but traditional views toward risk vs reward suggest only taking trades with a positive expectation. Commonly referenced guidelines for acceptable payoffs range from 1:1, 1:2, or 1:3.

When it comes to avoiding undue risk, consistency is key. Regularly implementing strong forex risk management tools can help to ensure that your strategy will not fall victim to an “unlucky” run of trades.



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