The Forex market has always been considered a high risk, high reward market and it offers investors trading opportunities round the clock. While trading skill and experience matter a great deal, ultimately, it is risk management that more or less guarantees consistent success in the forex market in the long run.
Here are tips to minimize risks when trading forex:
Choose a Regulated Broker
Regulation is the first sign of a trustworthy forex brokerage firm. Regulated brokers commit to having client funds in segregated accounts. They also respect confidential client details, offer fair and transparent pricing and in case of a conflict, traders are assured of fair arbitration.
Trading with an unregulated broker opens traders to dangers of identity theft and unreliable payments systems. Illegitimate brokers have also been known to manipulate their trading software to almost always generate losing trades for traders.
Know the Markets
The foundation of success in any field, and particularly forex where the profit potential is practically unlimited, is knowledge. At any reputable forex broker, there are comprehensive educational tools that traders should take advantage of to advance their trading knowledge. These include eBooks and videos as well as scheduled webinars which can help traders glean from the depth of knowledge and experience of veteran trading professionals.
Practice Before You Invest Real Money
After gaining trading knowledge, it is wise to try out your skills on a demo account before putting real money on the line. Demo accounts mirror exactly what is happening in the real market, with the only exception being that they are funded with virtual money. They are excellent learning tools and traders should utilize them even when they have started trading real money.
Don’t Expect Fast Gains
A market that is open 24 hours a day, with unlimited trading opportunities, can lead traders to develop a gambling mentality. But forex is not a casino and trading is not a game. This is a business, and success will always come to disciplined and educated traders who plan their trading efficiently and execute their plan objectively.
Maintain Sufficient Margin
Forex is a highly leveraged market which basically means that traders can control significant amounts with only a small ‘margin’. It is therefore vital for traders to maintain sufficient margin on their trading account at all times. This is because, sometimes, a minor move in the market can prompt the dreaded margin call. Thus, maintaining sufficient margin gives trades sufficient breathing room to close profitably.
Get the Right Tools
The forex market is a jungle, and to achieve success, traders require the right tools. The most important is the trading platform which offers traders a pathway to the market. It is important for traders to choose a broker that offers a broad range of trading platforms. This will include both desktop and mobile accessibility to offer traders the convenience and flexibility to trade on the go. A great platform will have an interface that is user-friendly as well as have quality charting tools and a wide range of tradable assets. It will also be stable and have lightning execution speeds, devoid of any latency or slippages.
Control your Emotions
Real money is always on the line when trading forex, and as such, emotions are bound to creep in. These could include greed, fear, hope, regret and overconfidence. Since we’re all humans, these emotions cannot be avoided, but they can be controlled so that they do not impact objective decision making in the market. When not restricted, emotions can lead to costly trading mistakes such as overtrading, overleveraging, trading bias and anchoring. By mastering your trading psychology, you will have the mental edge required for success in the dynamic and fast-paced forex market.
The Forex market offers lucrative opportunities for investors 24/7. But there are high risks involved as well. The above tips can help traders minimize their trading risks so as to maximize their profitability in the Forex market.