The importance of risk management in foreign exchange transaction

. If we do not take certain risks, the potential gains that traders may obtain will be very small. However, taking too much risk may cause the trader to lose all his capital. Second, risk management is about controlling the degree of risk that traders take.

experienced traders know that even long-term successful strategies can affect you in the short term, including:

; A large number of consecutive losses;

; Strategy failure caused by market environment changes? "> if there is no proper risk management, it may result in:

loss of all transaction funds

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the trading method of risk management makes you realize that you are taking risks, so you need to limit risks to maximize profit opportunities. The lack of risk management is one of the most common reasons for trading failure.


3. If risk management is implemented?

risk management can be achieved through appropriate tools and methods. These tools and methods are used at different times, some need to be prepared before the transaction starts, some need to be prepared after the transaction starts. You can follow these steps to manage your risk level. Step 1: determine your level of transaction risk; "> it's easy for a general trader to see only potential gains when trading, but a successful trader also needs to foresee possible losses at the same time. Traders can use a simple indicator to determine the ideal level of risk: the risk return ratio the risk return ratio is used to compare the expected return and the corresponding potential loss of an investment. It is calculated as the amount (i.e. risk) that an investor may lose when the price changes in an unexpected direction divided by the return (i.e. return) that the trader expects to gain during the settlement period of the position.>


due to the use of leverage in foreign exchange transactions, market volatility and price changes will enlarge profits and losses at the same time. When the market is volatile and uncertain, stop loss order is an ideal tool to reduce the loss caused by unpredictable market and minimize the risk a trader should not only use market order transactions, but also use more standing order transactions containing stop loss instructions. You can also add stop loss instructions to existing transactions.  

Step 3 profit taking in time

profit taking in time is a prudent and meaningful strategy. Rather than wait and see in a market with repeated risks in order to make more profits, it's better to take profits at a price that meets your risk return ratio.

. If you think the market may still be profitable, you can close out only part of the profits and continue to hold the rest. Because you have already made a part of the profits, it will also reduce your overall risk.