Forex trading: 4 easy ways to limit your risk as a beginner
Forex trading features relatively lower barriers to entry. When you consider this, in addition to the fact that trading in the forex market tends to attract lower commissions and fees, it is easy to see why it is the go-to method for beginners.
However, the fact that it is beginner friendly does not mean that you cannot lose money. In fact, if you are not careful, thanks to features like leverage, a beginner can end up losing more money than they have in their account. As a result, being able to manage risk of a key determinant of whether a beginner eventually makes a profit, or if he or she gets wiped out. If you are at the beginning stages of your forex trading career, using the following tips will go a long way towards limiting the risk of losing your money.
Start with a practice account
Most popular trading platforms like MetaTrader 4 allow for the option to use a practice account. This account allows beginners to familiarize themselves with the platform and the basics of trading in the market without putting their money on the line. Using it is also a great way to test out trading strategies.
Therefore, once you download metatrader4 and are ready to start trading, don’t jump straight into the deep end by putting your money at risk. Start your journey by using the practice account. Doing so will limit the chances of you making a catastrophic mistake that could wipe out your entire investment like pressing the wrong button. It will also give you time to analyze the market in a calm and collected manner since you won’t be risking your money, and this will go a long way towards helping you to grasp the fundamentals of the market at a faster rate. All of these things will help to reduce the risk of you losing your money.
Start small
Even after familiarizing yourself with how your trading platform works and the inner workings of the forex market, you still need to start small. This is because being live presents a few challenges and getting acclimated to the possibility of losing your money may take time. For example, once you get into a winning position, the temptation of holding onto it once it starts turning profitable might be stronger than you anticipated. Therefore, sticking to your trading strategy may prove to be a challenge and this can expose you to the risk of losing your money.
Starting small will limit your exposure when your emotions get out of control. It will also limit your risk when you fail to account for factors like slippage, which usually don’t have to be accounted for when backtesting or when using a practice account. Furthermore, putting a small percentage of your hard-earned cash on the line is just less stressful, and this will give you a better chance to make clearer decisions.
Keep a trading journal
When it comes to minimizing your risk exposure, nothing works as effectively as being able to learn from your mistakes. A good way to do this is to keep great records and to accompany it with a trading journal. In the journal, make sure that you note every detail accompanying any trade you make, including your state of mind. This will allow you to better understand yourself. It will also provide an opportunity for you to refine your trading strategy, something that will go a long way towards reducing your chances of ending up with losing trades.
Diversify your forex trades
There are times when in spite of your best efforts, you will end up on the wrong side of a trade. In such a case, you can end up absorbing losses that can cripple you, especially when you consider the risks that come with using leverage. However, if you decide to trade in different currency pairs, you can reduce the impact of making the wrong bets. This alone can go a long way towards ensuring that you have another chance to make your money back.
