Forex Risk Management Trading Tips

November 15, 2011 by  
Filed under Uncategorized

Article by Daniel Jones

Greece continues to have debt problems. The problems are apparently solved one week only for a new deal to be agreed the next week. And then in the following week we read that the Greek government is seeking new assurances from the EU / IMF. No one is in any doubt that Greece has a debt problem but each piece of news is immediately affecting the Forex markets.

When most of the news surrounding the financial markets is positive traders tend to move from the risk adverse currencies of the Dollar and Yen into the riskier Euro and Sterling and vice versa. Of course there is also the higher yielding Australian Dollar that has been popular for sometime.

Whatever your view of the forex markets, and however you trade them, you need to ensure your risk management strategies are in place. Most traders and investors develop their own trading rules to guide their investments, here are some of the more common, and sensible, ideas.

A) Put a plan together before you trade. I include the markets I am going trade, how much I am prepared to risk and, naturally, the profit level I am aiming for. If I am spread trading the forex markets I also plan my Stop Loss level to protect my downside. Likewise, I also plan my Limit Orders level to help lock in profits.

B) Trade the markets that you understand. If you are unsure about the ‘commodities currencies’ like the Australian and Canadian Dollars but have a good appreciation for the Sterling and Euro markets then you are probably best off trading the European forex markets.

C) Practice makes perfect. Well not always perfect but if you want to focus on a particular market it is worth having a look at trading it via a Demo Account first. A number of firms like offer these for free. A Demo Account simply lets you trade the markets with virtual funds. In other words, it is risk free. Trading via a Demo Account can help you understand their behaviours.

D) Make sure you have all the data you need. Firms like InterTrader provide free financial data for their clients. The data that companies offer varies but normally includes Market Heat Maps, Events Calendars and Technical Analysis.

E) It is important to control your emotions. Put some serious thought into the amount of capital you are willing to lose on a trade. You will lose some trades. Understand your potential exposure and accept that not every trade will make you a profit. This should help you keep a level head.

There are, of course, numerous other trading tips but many investors seem to get carried away and ignore the basics of risk management, make sure you are not one of them.

Based in the heart of London’s financial district, Daniel Jones is a seasoned financial spread betting professional and commentator.

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