Risk is such an intense word that it will be found in any type of investment. The real deal is to control your risk and get your reward. Doing this will keep you away from the margin call, and also it will help you in managing your account in the best possible way.
1. Restrict the risk: when you begin your trade, always make sure to place your stop loss as this will help you in getting out of your trade at the right time and hence the loss will be minimized. Although this reading material is available for the majority of traders but still some avoid placing the stop loss.
2. Calculate the money you are putting at risk: A majority of traders tends to estimate risk/reward ratio. Some traders choose the 2:1, whereas some prefer with 3:1. This looks good, but the question is that how many dollars you are sacrificing as a result of this? Almost every broker has this data available. Some mathematical methods are provided to calculate the amount of risk.
3. Grip your stop loss: Following this way, the minimum money will be put at risk. This may sound good to traders, but the reality is different. If you put your new stop loss too tight, chances are that you will lose all your money quickly. If you think of shrinking the amount of invested money than it doesn’t mean that it will also shrink the chances of lose. You should always place your stop loss after doing technical and fundamental analysis.
4. Decrease the position size: Setting a lower position size will help you to place a stop loss at the right time. Along with that, your risk percentage will be lower and the reward will be lower as well. This is usually tempted for the making the longer positions. However, remember one thing that this is not real money, and it is just recognized as leverage money. To get the full trade position, you have to decrease the position size.
5. Calculate the total percentage of account you are putting at risk: We have already discussed the amount of dollars you are putting at risk, but do you know about your burn rate? For example, there is $1000 in your trading account, and you set the risk to 20%. If your first trade appears as bad, you will directly lose $200. If this goes for the five trades in a row, you will be fully liquidated. If you have put your feet in the forex world, you are likely to lose a lot of money at the beginning. If you put your risk higher, you are likely to burn yourself very quickly. You must take time to learn from the mistakes.
|Amount of Equity Lost||Amount of Return Necessary to Restore to Original Equity Value|
Money management is the most important reason why more than 90% forex traders don’t earn money. remember this !!!