The forex market or the foreign exchange market is one of the most risky markets, this is real and undeniable in any case, and despite the loss of the ability to control price levels, the trader has many tools that will reduce the level of risk The potential, and these tools are called risk management tools, what are those tools and how can they be controlled? This is what we will learn about in this article.
Forex Trading Risk Management Tools
We can define risk management as working to eliminate the undesirable risks that surround the deals that are being concluded, and this is through a number of tools or means, namely:-
- Determine the size of the deal
The size of the deal is vital in the amount of risk that the trader is exposed to, so it is necessary to be careful and choose the size of the deal very carefully, and the general rule here is not to enter more than 1-2% of capital in only one trade.
For more clarification, let me explain this example to you, and suppose together that there are 2 traders who have the same amount of initial deposit which is 10000$, and each of them entered into 10 consecutive trades, but the first one was choosing the trade size by 2% of his capital, while the second one was risking 10%, when a loss occurs in all trades, the first will remain about 8337$, while the second will remain 3874$, and the essential difference here was in the size of the deal.
- Leverage Ratio
As it is known in the forex market that most of the financial intermediaries They give their clients a leverage feature that enables traders to open trades with financial values multiple of the amount deposited. In other words, if a trader uses a leverage of 1:100, this means that every 1$ that is deposited gives him the opportunity to enter into a trade with a value of 100$.
But here it should be noted that the financial leverage is a double-edged sword. Despite its ability to multiply potential profits, it also doubles the risk ratio and the size of losses; Therefore, it is always advisable to choose the leverage ratio to be used, especially if one is a beginner in the world of trading.
- Use the Deal Cancellation Tool
dealCancellation is a newly emerging trading tool, created by easyMarkets easyMarkets has obtained a patent.
Very simply, this tool enables you to cancel your deal, within a period of 60 minutes, and that period can be increased to 3 or 6 hours as you wish, and thus you have retracted the losses resulting from that deal, and this is in exchange for paying a small fee, and this tool is not limited to trading Not only currencies, but it can also be used in gold, silver and oil trades, but in all cases it must be activated when setting the transaction settings from the beginning, as it cannot be added to an open trade.
- Diversity of the investment portfolio
“Do not put all your eggs in one basket.” This is the general principle in the financial and business market, where there must be diversity between different currency pairs, so that the percentage of Risks The most important thing is to know how different news affects the price movements in the market, as well as understand the nature of the relationship between currency pairs. trading.