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Forex Risk Management
What’s your risk % per trade?
Or should i say, what’s your risk appetite?
To be a successful forex trader. You will need to have a proper money management system.
It starts with identifying what level of risk % per trade will you risk.
As a guide, a safe and good risk percentage will be from 1% – 3%.
Anything higher than 3% will be relatively risky.
Why is this so?
If you understand, the forex market can do anything.
Even if you are sure this is the MOST perfect setup.
It MAY NOT end up the way you expected it to be.
Why?
Forex Risk Management – What’s your Risk % per trade?
Forex Risk Management
First, you must understand that anything can happen in the forex market.
Just for example, even if it is the most perfect setup. If a major institution pumps in a large sum of money at that period of time. It can change the direction of the market for a short time frame.
And when the retail investors see the market moving in the direction stipulated by the major institution, they will then follow suit and enter the same way.
WHICH causes the movements in the market.
But of course, this doesn’t happen always.
What I’m saying is, anything can happen in the forex market.
So even if you are the best forex trader in the world. You will not have a 100% winning rate as well.
You will still lose as the market can do anything.
Which is why it is not wise to have a high risk per trade.
Forex Risk Management – For example, if a trader risk 10% per trade.
And a series of unfortunate events happen to him, (maybe it’s a distraction, maybe there’s an earthquake etc)
As a result, he made a series of 5 losing trades.
He would have wipe of 50% +- of his trading capital because he risked 10% per trade.
And with just 50% left, it will be hard for him to make back his loss.
So if you see what I meant.
Forex Risk Management – For example, if you risk 2% per trade.
With a series of 5 losing trades. You would only lose 10%+- of your capital.
Which is not to bad.
With a good trading system, we can easily make back the money loss.
Forex Risk Management – What’s your Risk % per trade?
Forex Risk Management
But here comes the big question.
What is your risk appetite?
You see, there is absolutely no point into asking you to risk 1% per trade.
Forex Risk Management – Eg. Capital $5000
Risk of 1% = $50 per trade.
If at the back of your mind, you do feel that $50 per trade is too little.
Then you will most likely find and trade even more trades that you usually should – in order to make more money. Right?
Therefore, the correct way to set your risk % per trade varies with different individuals.
You must ask yourself.
Forex Risk Management – Eg. Will you be satisfied with
$50 per trade or
$100 per trade or
$150 per trade
based on the capital of $5000
Once you got an answer, you got your risk percentage.
Forex Risk Management – What’s your Risk % per trade?
Forex Risk Management
Remember,
1) Your risk percentage cannot be too high. As mention, a good gauge is 1% – 3%.
2) Your risk percentage must meet your risk appetite. There is no point in risking 1% if you find the amount too little and does not satisfy your hunger.
So there you go.
Once you have set and decided on your risk % per trade.
STICK FIRMLY TO IT!
For example, in a series of trades. You cannot have eg. 1% on 5 trades, then 3% on 5 trades etc.
Because if you play it this way, and what if you make money on the 5 trades with 1% risked, and lose money on the 5 trades with 3% risked. (which usually happens!)
YOU WILL LOSE MONEY!
Therefore, stick firmly to the risk percentage per trade which you have set.
Eg. If you set 2% risk per trade.
From now on, every trade you take – You will risk 2% per trade.
NOTHING MORE, NOTHING LESS.
This way, you will be consistent and you are on the right track to success.
This is part 1 of the 2 series of Forex Risk Management.
Stay tuned for the 2nd part.
Check out our online forex trading AFM winning Forex Price Action Forex Course where i teach you the exact FULL Forex Trading Strategies | system that i personally use to be consistently profitable.
See you on the other side my friend,
Asia Forex Mentor
Ezekiel Chew
Asia #1 Forex Mentor
www.lifeofatrader.com
Next Expert Article: Risk management part 2 (how to calculate lot size)
FAQs
Risk per trade should always be a small percentage of your total capital. A good starting percentage could be 2% of your available trading capital. So, for example, if you have $5000 in your account, the maximum loss allowable should be no more than 2%.
Which forex trading course is the best? ›
Top 8 Best Forex Trading Courses Reviews
- Benzinga Forex 101 Course – Best Versatile Forex Course for All Levels.
- Zen Trading Strategies Masters Course – Best Algorithmic Forex Trading Course.
- ForexSignals – Best Community-Driven Forex Learning Platform.
- Asia Forex Mentor One Core Program by Ezekiel Chew – Best Overall.
Top Diploma & PG Diploma Forex Courses
| Diploma & PG Diploma Course Name | Colleges Offering | Average Fees |
|---|
| PG Diploma in Forex and Risk Management | World Trade Center, Mumbai | INR 35,000 |
| Diploma in Insurance and Risk Management | ICAI, New Delhi | INR 6,150 |
| PG Diploma in Foreign Trade | Savitribai Phule Pune University, Pune | INR 10,000 |
Forex traders should consider the country's risk for a particular currency, which means they should assess the structure and stability of an issuing country.
- Leverage Risks. ...
- Interest Rate Risks. ...
- Transaction Risks. ...
- Counterparty Risk. ...
- Country Risk.
The 2% rule is a risk management principle that advises investors to limit the amount of capital they risk on any single trade or investment to no more than 2% of their total trading capital. This means that if a trade goes against them, the maximum loss incurred would be 2% of their total trading capital.
What is the number one rule in forex trading? ›
Rule 1: Education Is Key
Before diving into the world of forex trading, invest time in education. Learn about the forex market, how it operates, the various trading strategies, and technical and fundamental analysis. Continuous learning will help you make informed decisions and develop effective trading strategies.
Is $500 enough to trade forex? ›
Yes, $500 or $1000 is enough to get involved in forex. Well, this depends on how much you're risking per trade. If you risk $1000, then you can make an average of $20,000 per year. If you risk $3000, then you can make an average of $60,000 per year.
How much money do I need to start forex trading? ›
Answer - You can start trading with as little as $10 or invest more, like $100, $1,000, or even $15,000. Higher investments can potentially lead to higher profits in forex. However, it often requires substantial investments to achieve significant gains.
How long do I need to learn forex trading? ›
The amount of time it takes to master forex trading on your own will vary depending on your dedication and commitment to learning. Some traders may be able to grasp the basics within a few weeks, while others may take several months or even years to become consistently profitable.
How much can forex traders make a day? ›
On average, a forex trader can make anywhere between $500 to $2,000 per day. However, this figure can vary significantly depending on market conditions, trading strategy, and risk management techniques. Some traders may make more than $2,000 in a single day, while others may make less or even incur losses.
Unrealistic Promises: Forex scammers often make unrealistic promises of high returns or guaranteed profits. Remember, trading in the forex market involves risks, and no legitimate broker can guarantee profits. Poor Customer Reviews: Research and read customer reviews about the broker or investment company.
Why 90% of forex traders lose money? ›
The reason many forex traders fail is that they are undercapitalized in relation to the size of the trades they make. It is either greed or the prospect of controlling vast amounts of money with only a small amount of capital that coerces forex traders to take on such huge and fragile financial risk.
What is the best risk ratio for Forex? ›
Usually, Forex traders take trades with 1:2, 1:3 risk to reward ratios or higher. However, it is also possible to make money even when your risk to reward ratio is just 1:1.
Can I risk 5% per trade? ›
Some aggressive traders, with a high risk appetite, could risk between 2% and 5% of their total trading capital per trade. This approach may result in high returns but with the attendant risk of incurring huge, unexpected losses.
Can I risk 2% per trade? ›
The powerful beauty of this rule is that if you strictly adhere to it, you would have to make dozens of consecutive 2% losing trades in order to lose all the money in your account. Even for a new trader, this is highly unlikely. Although often used by traders, the 2% threshold is completely arbitrary.
Can I risk 10% per trade? ›
However, if you decide to risk 10% per trade you would be down over 60%, and that would be a deep hole to dig yourself out of. As you can see above, the percentage required to go back to break even as calculated from the remaining balance can be dangerously huge.
