Protecting Yourself When Trading Forex by Knowing the risks and preparing for them
Like any investment system, trading in the forex markets carries risks. It is possible to suffer losses as well as gains. Lose more than you can afford and it’s unlikely that you’ll get a second chance. Those risks are particularly acute when you’re starting to trade forex and have yet to gain experience.
Fortunately, there are a number of tools that you can use to reduce your risks and minimize any losses that you might suffer.
You can’t watch the markets all the time, what if even if you worked out correclty what the market was going to do.. you’re waiting to trade.. then the phone rings.. oops.. well .. you can set up automated orders to keet you safe.. Stop Loss Orders and Take Profit Orders.
Use Stop Loss Orders (Stop Losses)
The first is a stop-loss. A stop-loss automatically closes your position in the forex market when the bid or offer price of a currency you’re holding reaches a set level. For example, you might place a stop-loss just below the purchase price of your currency. If that currency were to fall dramatically, you would only lose up to the amount of the stop-loss.
For people just starting to trade forex, stop-losses can be very useful ways to remove the confusion that can slow a decision — and increase losses — when a currency suddenly drops.
Guaranteed stop-losses are similar to stop-losses but provide an extra level of protection. Occasionally, a currency can fall so fast that it skips past the price set for the stop-loss. A guaranteed stop-loss ensures that your currency will be sold at the price you have set, even if the market has fallen beneath that level.
Take Profit Orders
Profit caps are similar to stop-losses in that they also trigger an automatic sell. In this case though, they’ll trigger a sale intended to guarantee a profit rather than to protect against a loss.
You can think of profit caps as tools to snatch opportunities at times when you’re not alert to them. If a currency you’re holding spikes at some time on the 24-hour forex market when you’re not watching it, you’ll still be able to benefit.
So you can protect yourself against a free-falling currency, and you can earn from a suddenly rising currency. But the best way to protect yourself when trading forex is to manage your money carefully. Place no more than 10 percent of your available funds in any one trade and never invest more than you can afford to lose
You can find out more at paddypowertrader.com