Risks in Forex Trading

As a mostly speculative activity, forex trading involves many risks. In two words, forex trading risks are mainly about losing money. That's why Forex Money Management is so crucial when it comes to forex. Traders must have a plan and stick to it no matter what, or else they might lose their shirt in a matter of hours – that’s why you must never trade money that you need to survive. In fact, one of the ways to approach forex trading is through risk management. Much of how you trade is actually defined by your risk profile: are you someone who likes taking risks, hates taking risks or someone who is generally apathetic to risk?Depending on your answer to this question, you will build your own customized trading strategy. Having a trading plan and sticking to it is the only way to make forex trading profitable and to avoid the main forex trading risks. When trading forex, risk management makes up a big part of your plan. To define a clear trading plan, traders must define several points:When to trade: what timeframes are best suited to your trading routine? Are you more of a day-trader – someone who trades over a couple of days, usually aiming for 10 to 50 pip profits; an intra-day trader – this category of traders is also known as “scalpers”: they trade on time frames of a few minutes and make a large number of deals for profits usually ranging from 5 to 10 pips; a swing trader – these are professional traders who open positions over several days for profits ranging from 50 to 100 pips; or a position trader – meaning that you make less transactions over a longer period of time for profits ranging from 500 to 1000 pips To learn more, continue to: Forex Trading HoursWhat tools do you base your trading strategy on? Whereas intra-day traders and day traders will generally make their trading decisions according to technical analysis, position traders usually trade according to fundamental analysis. As for swing traders, they usually use both. Which products do you trade? Some products such as options are more complex than others and will therefore be traded by more seasoned traders. Choosing the right product is also essential when it comes to trading strategy. And last but not least: what risk are you willing to take? According to your money management system, you will define a certain percentage of your capital you are ready to loose, and set margin, leverage and stop-losses accordingly. The extent of forex trading risks is equal to its potential profitability. Indeed, since forex is a leveraged market, it allows for huge profits but can also lead to huge losses. That’s why we recommend traders new to the field to use a relatively low leverage level at the beginning. That way, you can test your overall strategy without risking too much. If you lose, you can readjust your strategy and still have enough money to get back into the game.In brief, the main forex trading risk is losing money. However, with a sound trading strategy, solid money and risk management plan and a cool head, you may limit and minimize your losses while maximizing your profits. It is also to be noted that with Finotec, in order to prevent over-ambitious traders to lose what they can’t afford, you cannot lose more than your initial deposit. If a trader reaches that point, part or all of his positions will be closed to avoid.