When trading, a Forex investor can multiply capital, and the risks to loose not only potential earnings, but the invested money as well. The deviation from an average expected yield determines the investor’s risk in the financial market.
This kind of deviation can bring high profit as well as great loss.
Financial risk management does not guarantee a successful trading, but assembles important parts of it. Every currency operation is a risk. That is why usage of general management methods decreases potential losses.
Risk management methods
- 1. Stop order setting;
- 2. Capital share investment;
- 3. Trend trading;
- 4. Emotion control.
are used after positions are opened. The main risk management method is an order setting that restrains losses.
Stop loss (literally means to stop losses) – is a point where trader goes off the market to avoid a disastrous situation. You have to set a stop loss when opening positions for preventing losses.
There are several types of stop signals
- Initial stop signal – determines the deposit amount or interest rate that the trader is ready to lose. When the price moves toward this position and reaches it, the trader’s fixed level position closes, not exceeding the loss preset by the trader.
- Trailing stop signal – is when price moves towards a position and stop signal is set right after it, according to trader preferences. In case the direction changes, the price reaches that signal and the trader goes off the market, potentially having earned profit (depending on when the price started moving).
- Profit raising – is when a net profit has been earned and position is closed.
- Stop signals at times – is when the market is not able to provide the necessary yield rate in the course of time and the position closes.