How to Protect Your Forex Account From the Risks You Take
How to Protect Your Forex Account From the Risks You Take
The Forex market is the most lucrative liquid business in existence today. With the exception of a very volatile market, the positions can liquidate immediately and the orders placed are always guaranteed to be executed 100% without failure.
Most traders believe that aiming for ten to 15 PIPs every transaction is much easier that aiming to 30 to 50. They base this belief on the slow movement of the market. It may well be moving on the ten to 15 PIPs range and it may seem to take forever to move to the 30 to 50 PIPs range. Aiming for ten to 15 PIPs seems like the right thing to do, right? Wrong. Most of the traders who think this way have been doing so for a long time. They usually have to put in much effort in order to break even every month.
Leverage
This allows you to facilitate a large trade using a small amount of money in your Forex account. You can go as far as a $20,000 trade with a $50 deposit. When offered a leverage of 400:1, you can control a $20,000 trade with a $50 capital deposit in the account.
Affordability
There are mini and micro accounts with as low as $100 deposits that offer a leverage of 400:1. These accounts make trading affordable for an "average Joe" who wants to venture into the Forex market.
More Options
In the futures market, the lot sizes are determined by the outcome of the exchanges. This system does not apply to online forex trading. Online forex trading allows a trader the option to choose the lot size to be traded depending on the size of the trader's account.
Lot Size
The Lot Size determines the dollar value of each pip. The pip values are based on trading EUR/USD. Online Forex trading allows a trader to choose the lot size they want depending on the amount of money in their accounts. Micro accounts offer as much as $1,000 ($0.10 per pip), while mini accounts offer up to $10,000 ($1 per pip). A regular account can offer as much as $100,000 ($10 per pip). It is up to the trader to choose which account he can afford to work with.
Stop Loss Order
When you lose in a trade, the Stop Loss is the best strategy to employ to prevent from losing more than you can afford. The Stop Loss Order protects you by preventing additional loses once the position of the trade goes against your favor. A wise trader will never conduct trades without the insurance of a Stop Loss trade. The Stop Loss Order will be determined based on a trade entry. The risk/reward ratio will also be taken into consideration as well as areas of support and resistance.
Risk/Reward Ratio
Another strategy a trader can use is to study the risk/reward ratio of a trade. This ratio determines if the trade will go in your favor. You have the option to continue the trade, or look for another trading opportunity. In a bare minimum ratio of 1:2, the risk will be 20 pips whilst the reward, 40 pips. In trades, a risk/reward ratio should allow a trader to still earn profit even when he is 50% wrong.
The Forex market is the most lucrative liquid business in existence today. With the exception of a very volatile market, the positions can liquidate immediately and the orders placed are always guaranteed to be executed 100% without failure.
Most traders believe that aiming for ten to 15 PIPs every transaction is much easier that aiming to 30 to 50. They base this belief on the slow movement of the market. It may well be moving on the ten to 15 PIPs range and it may seem to take forever to move to the 30 to 50 PIPs range. Aiming for ten to 15 PIPs seems like the right thing to do, right? Wrong. Most of the traders who think this way have been doing so for a long time. They usually have to put in much effort in order to break even every month.
Leverage
This allows you to facilitate a large trade using a small amount of money in your Forex account. You can go as far as a $20,000 trade with a $50 deposit. When offered a leverage of 400:1, you can control a $20,000 trade with a $50 capital deposit in the account.
Affordability
There are mini and micro accounts with as low as $100 deposits that offer a leverage of 400:1. These accounts make trading affordable for an "average Joe" who wants to venture into the Forex market.
More Options
In the futures market, the lot sizes are determined by the outcome of the exchanges. This system does not apply to online forex trading. Online forex trading allows a trader the option to choose the lot size to be traded depending on the size of the trader's account.
Lot Size
The Lot Size determines the dollar value of each pip. The pip values are based on trading EUR/USD. Online Forex trading allows a trader to choose the lot size they want depending on the amount of money in their accounts. Micro accounts offer as much as $1,000 ($0.10 per pip), while mini accounts offer up to $10,000 ($1 per pip). A regular account can offer as much as $100,000 ($10 per pip). It is up to the trader to choose which account he can afford to work with.
Stop Loss Order
When you lose in a trade, the Stop Loss is the best strategy to employ to prevent from losing more than you can afford. The Stop Loss Order protects you by preventing additional loses once the position of the trade goes against your favor. A wise trader will never conduct trades without the insurance of a Stop Loss trade. The Stop Loss Order will be determined based on a trade entry. The risk/reward ratio will also be taken into consideration as well as areas of support and resistance.
Risk/Reward Ratio
Another strategy a trader can use is to study the risk/reward ratio of a trade. This ratio determines if the trade will go in your favor. You have the option to continue the trade, or look for another trading opportunity. In a bare minimum ratio of 1:2, the risk will be 20 pips whilst the reward, 40 pips. In trades, a risk/reward ratio should allow a trader to still earn profit even when he is 50% wrong.
