This section reveals only a part of those risks assumed by the trader, starting to play at the currency market.
Gambling operates on the market newcomers like a drug. Emotional game is the enemy of success. You must take a decision in the heat of passion, and a well-designed plan, based on signals from your own trading system.
Good specialist strive to achieve professional results, counting the money only product of its success. If you are in the process of fulfillment of the transaction will only think about money, you are unlikely to succeed in Forex.
Loss in the account can affect your ability to make appropriate decisions.
Pay attention primarily on the quality of the transaction.
The Amount of your Deposit should reflect your overall financial status. Never invest in Forex your last savings. The optimal ratio of invested funds from your budget should not exceed 1/6.
The Effect of leverage is negatively affects the integrity of your capital. Therefore, with a small Deposit is more expedient to play with shoulder-50, maximum of 100 times. Should not be tempted by the large credit lever, as in the case of a failed transaction your capital quickly evaporate.
The Most reasonable leverage - 50, maximum is 100.
You Need to strictly determine for yourself how much money you can risk in case of unsuccessful open position. Usually, such amount shall be not more than 2-3% of the Deposit.
When mandatory formulation of protective orders (stop loss) do not exceed the previously established limits. Remember that human beings are inherently prone to risk.
Before you begin to trade, you should obtain a clear view of all Commission, which takes your broker. Better if this item will be certified by documents. Remember that these costs have a direct impact on your profit and loss.
If you work through the Internet, remember that any failure in the system can lead to sad consequences for your account. Always keep the relationship with the broker on reliable telephone line, keep a record of open positions and submit all orders in the case of unexpected system failure.
Any electronic system prone to failures.
Keep on your monitor spare variant of quotations of currencies, to have an idea about real change of the market.
Remember that any forecasts, data analysts even the most famous global banks and think-tanks, may not serve as grounds for opening a position.
Try not to work with illiquid currencies.
Risk Control is an essential part of successful trading. Effective risk management requires not only careful observation of the size of the risk, but also the strategy to minimize losses. Understanding how to control the size of risk allows the trader, novice or experienced, to continue trading even when there are unforeseen losses.
Since each transaction is subjected to some degree of risk, the use of some of the General principles of risk management to reduce the potential loss. Some common axioms of risk control are listed below and can be used by all who ever traded or are thinking about this.
Rule 1: Do preliminary homework
Do his homework before the deal is a duty which couldn't be replaced. On each customer is well informed seller and each seller has a well-informed buyer. Each tries to maximize its profits. Before you put your money at risk, you should have a thorough, well-thought-out reason why you want to buy something that someone else wants to sell. Moreover, trade is a game “form of capital.” Ask yourself, what do I know of that does not know the seller (or buyer)? Be careful and draw some degree of respect to the person on the other side of the counter.
You need to be clear about what financial risk may encounter at any time. Of the domestic work includes evaluating the potential loss in case the market moves against you by 5%, 10% or 20%. Preliminary work at home on trade will also help you calculate the worst possible result, potential exposure to risk.
You can reduce the risk, if limited to transactions, to carry out examination of which is in your power (this is the preliminary homework). We know a trader, who rushed to buy futures on orange juice after a surprise cold snap in Florida. It was only later that he realized that damaged by frost oranges can be sold for the production of orange juice. In reality, a sudden cold snap has increased, not reduced the proposal of orange juice, and excess supply greatly reduced the rates on the futures of orange juice. If a trader has done a preliminary homework, he would know what to expect.
Rule 2: Create a trading plan and stick to it
Every trader should create its own methodology trade. Methodology or model of trade may be based on fundamental factors, technical indicators or a combination of both. The methodology should be widely tested and processed until she demonstrates desired and long positive result. Before you invest any money, make sure that your trading methodology is reasonable and profitable.
Important part of your trading plan is to establish restrictions on the amount that you can lose. If you reach this limit, then quit the game. Stick to your trading plan and avoid impulsive transactions. If you do not follow your plan, then you don't.
Trading plan helps you identify and evaluate the key factors that affect your trades, and may be an important teaching tool for subsequent transactions. A reasonable plan trade inspire you with the feeling of confidence. Also it is unlikely that having a plan, you are going to trade impulsively.
However, do not follow blindly own trading plan. If you do not understand what makes the market, or your emotional balance somewhat compromised, close all positions.
Creating your trading strategy, don't listen to a broker and do not invest on the basis of market councils or rumors. Your money will be at risk. Before you trade, do the preliminary homework and consider their reasons transactions.
Rule 3: Diversify
Portfolio Risk is reduced through diversification. Don't bet on all of money for one transaction. Diversify the amount of risk from trading on one position is not more than 1% - 5% of your capital. (Contracts with various expiration dates on the same contract are considered a single position.) Consider a diversification in different markets and with different systems of trade.
To be effective, diversification should include securities that are not strongly correlated with each other (that is not moving in the same direction at the same time). High positive correlation reduces benefit from diversification. Carefully monitor the connection between all their positions, дебалансируйте and adjust its portfolio.
Predefined stop order, limit the amount of risk and reduce your losses by fast moving markets. Please strict rule of stop-loss, for example, quickly leave the game if you lose 5%-7% - and follow him.
Rule 4: Not invest all your money
Before you make a deal, make sure you have enough capital to compensate for unexpected losses. If a deal looks unexpectedly profitable, perhaps you are too optimistic. Markets usually are rarely as good as they may seem at first glance. If the market suddenly turns down, it's reasonable to have some capital to compensate for the smaller losses or to meet a margin call. Some capital allocated the additional purchase, reduces stress, reduces the need to take unnecessary risks and, usually, it helps us sleep better at night :).
Rule 5: Use stop orders
Predefined stop order, limit the amount of risk and reduce your losses by fast-changing markets. Please strict rule of stop-loss, for example, quickly leave the game if you lose 5%-7%. Even the most experienced traders, not to mention the successful, use a stop order to limit the amount of risk. Make a commitment on the withdrawal from the game, if your plan does not work. Stop signals are needed to protect you. Use them when you start the game.
Some traders use the brake in time. If the market is not behaving as you expect, exit the market, even if you do not have to lose their money. Stop signals in time are a reminder that you should exit the market, if you are not sure what is really going on.
Rule 6: Trade with the trend
it is unlikely that you suffer a loss, if you follow the trend of the market. The direction of the market does not matter, as long as you have a position on the appeared trend. If you have opened an unsuccessful position, then systematically decrease the size of the risk.
Rule 7: mistake and suffer losses
Important aspect of risk control is the ability to recognize that you're wrong, and quickly go out of the game, even if it means losing money. Even the best traders from time to time, suffer losses. But we all hate to admit your mistakes, so this rule will find it hard to follow. Axiom is simple: give accumulate profit and minimize losses. Reduce the amount of risk if the market moves against you. Don't add to a losing position, hoping to compensate for the loss. If you do not understand what makes the market, then quit the game. Also, do not immediately after unprofitable deals are made following the deal, hoping to win back - we must first of cool emotions.
Rule 8: Trade, taking measures of protection
Paul Tudor Jones expressed great thought about trading in football terms: “the Most important trading rule is to play great in protection, not perfectly in the attack”. Think first about what you can lose and compare this with the possibility of winning. Better take into account the possibility of negative developments ahead and make a plan, then more than a change after the fact.
Always allow the idea that the market can move against You - and get ready for this in advance. Calculate the maximum use of the loan. If necessary, adjust the levels of stop signal where it is more suitable. Create a plan to exit from the market. Therefore, when the market starts to move against you You're ready. Protect what you have .
Rule 9do Not overtrade
Reduce the size of the risk by reducing the transactions and the conservation of small bets. Be choosy about the risks to which you are exposed. Limit one transaction, which is the most attractive. This will force you to perform some homework and reduce impulsive and emotional transaction. As deals will be less, you will be more patient. Fortunately, fewer deals also reduces the amount of Commission you pay.
Rule 10: Control your emotions
All traders from time to time are experiencing severe stress and suffering losses. Anxiety disorder, depression, sometimes despair, are part of the game on the market. Part of risk management is the ability to control these emotions. Do not let your emotions rule your trade. Focus on what you do. Trade on the basis of informed, rational decisions, not emotions and fantasies.
Communication with other traders is one of the ways to maintain control over their emotions. Other traders understand the challenges that you faced and can provide important emotional support when you lose your courage. It helps to understand that you are not alone and that others have faced similar problems and have experienced them.
Rule 11: If in doubt, leave the game
Personal doubts indicate that with your plan to trade something wrong. Quickly exit the market, if:
- the Market behaves irrationally;
You are not sure of the position;
- You don't know what to do;
- You can't sleep at night.
Before you put your money at risk, you should be sure in what you are doing, and that you are lucky.
The basis of risk management consists of four main steps:
- A full understanding of what the risk is subjected to the deal.
- Elimination of possible risks that are not necessary.
- Be selective in what risks can be subjected to a deal.
- act Quickly to reduce the amount of risk if the market moves against you.
For many traders key moment risk control is the ability to reduce losses before they lead to ruin.
Edwin LeFevre, author of “Reminiscences of a Stock Operator” wrote: “the Enemies of the trader, which lead to his death: ignorance, greed, fear and hope”. Although these internal enemies will never be defeated, effective methods of risk control can minimize their negative impact. Rational strategy risk control, on the contrary, should lead to smaller and less expensive unprofitable transactions.