Forex market is one of the most lucrative financial markets in the world and provides a great opportunity to you to earn some big profits over time. But there are risks involved too and when your speculation goes against you then you will have to face the losses. So how to manage these risks? Forex risk management can make the difference between your survival or sudden death in the field of Forex trading. You can have the best trading strategies in the world but still you are prone for losses if you do not perform a proper risk management. Risk management can be limiting the lot size, hedging, timely trades and managing the losses.
Why it is important to manage risks in Forex?
Risk management is one of the most important requirements for the survival of a Forex trader at XFR Financial Ltd. It is not just a concept for the traders to read and understand but it needs to be applied as well. The things like Leveraging are discussed much and applied but the drawbacks are not discussed much. This makes the mindset of the traders that they will take big leverages and so bigger risks and focus on big profits. This may seem good if you are playing with a demo account but this should not be the case with the real money where a proper risk management is important.
One of the most important aspects of risk management is the control of losses. You should know where you should cut your losses on your trade and you should put a hard stop or a mental stop there. XFR Financial Ltd explains that a hard stop is set a stop loss at a certain level of trade. A mental stop is the maximum pressure or drawdown where you set a limit. This is all decided by yourself but the main point is that you should limit your risks and losses so that it makes sense for you to do the trade. Managing the stop losses is important so that your money is not wasted and you limit the losses if nay.
Use of correct lot sizes at XFR Financial Ltd
There is no magic formula which comes up when you are going to decide your lot size. In the beginning the smaller size of the lot is always better. The best rule is to be conservative as much as you can. It is better to understand the risks of using larger lot sizes even if you have good money to trade with. Keep a small lot size and this will help you to remain flexible and trade with the logic and not just the emotions.
Keep a track of your overall exposure
You may be dealing with the different currency pairs at XFR Financial Ltd but it is important to understand the correlations between the currency pairs. Take an example if you are dealing with USD/INR and USD/EUR, you are dealing with USD in both and thus it makes two lots of USD for you. Any influence in USD will affect both the pairs in the same direction. So it is better to keep your exposure limited and thus reducing the level of risk for you.