Risk Management Tips for Forex Trading
People often cite the forex market as one of the best investments for new traders, but it’s also a rather risky one. While the concept of currency trading is easy to grasp for many, it is still not the easiest to predict. Things become worse when you add leverage into the mix. But there are things that you can do to reduce your risk and increase your chances of getting consistent returns at the beginning. Here are a few risk management tips for new forex traders.
Choose the Right Platform
One of the most important things is choosing the right platform. Look for platforms offering risk management tools and a lot of educational resources as well. Going with a broker that cares about the success of its traders will be very important when getting started. They will usually go a step further when it comes to customer service and have strong communities as well, so you won’t have to be alone.
Be Careful With Leverage
If you have limited capital, you should know that you can’t expect to make too much money at the beginning without using some leverage. But you have to be very careful with how much you use. With brokers out there offering leverage as high as 200:1, it’s very easy to get in the hole fast.
Something like 10:1 leverage could be enough for many traders. That would be all they need to start testing the waters and try a few strategies. They may also be able to start practicing with technical analysis. This brings us to our next point.
Learn Your Technical Indicators
Forget trading the news when it comes to the forex. While they can give you indications about things like political unrest or changes in fiscal policy, they are much tougher to track in real-time than things like stock. Learning technical indicators and how to read charts will be very important if you want to make money through a tactic like scalping, for instance.
You will first need to learn how to read Japanese candlesticks. You should also start getting familiar with tools like the relative strength index, or RSI. Knowing these will already put you ahead of many “investors” out there. From there, you can start doing a few practice trades using analysis and fine-tune your strategy until you find something that works.
Stick to Familiar Pairs
Maybe you have specialist knowledge about a certain market. This is all good, but you should know that there are risks associated with trading exotic pairs. One of them is liquidity. You simply don’t know what the demand for a currency will be one week, month, or a year from now. They also tend to be much more volatile and less predictable than well-known pairs.
These are all tips that you should follow if you want to keep your risks to a minimum when trading on the forex markets. The most important thing is to constantly keep learning and get the fundamentals first before investing large sums of money.