Forex market is currently the biggest single investment on earth, with 90% of clients being individual traders. Just like any other financial market it has a high level of risk, however, the best thing you can do to manage this risk is to never trade any amount of cash you cannot afford to lose. Another thing, always select the right forex broker.
What to use in The Forex market
Finding a proper trend is one of the keystones in the understanding of the forex market. Trending can be described as a market which has price moving in only one direction for a given period of time, then it might retrace in a relatively short period. This enables the investor to go short or long depending on individual biases towards respective trend. Best forex platforms will provide the investor with different indicators that can be used to facilitate decision making. The basic ones are:
- Moving averages
- Bollinger bands
- Stochastic
How to reduce Forex trading risk
The sweetest part in the Forex market is the fact that it’s made the largest empire with country imports and exports. Luckily, forex brokers have modernized forex trading by making it easily accessible to everyone on the global arena. Managing and reducing risks are at the roots of trading forex, and how a trader go about it can make or break him/her. To reduce risk, follow the steps below:
- Trade using Regulated Forex brokers
The National Futures Association (NFA) regulate all registered reliable forex brokers to ensure individual interests are protected from unfear practices. The best way to lower unnecessary risks is to avoid fraud dealers. Therefore, you should do your due diligence, research on different brokers, and read forex broker reviews. Using a regulated broker as Tradefw.com can significantly reduce the risks of capital loss.
- Use correlation when trading
There are different forex trading methods and one of them is to correlate different currency with one another. This means the trader will have a portfolio of risk reduction as price move in a certain direction, the calculation of this correlation is very simple. First, visit currency data centre of your choice, and then import the closing prices of all the currency you wish to correlate. Paste the figure into an excel sheet and write the following command, =CORREL (list of first prices, list of second prices). Correlation of 1 means perfect correlation while -1 means negative perfect correlation.
- Keep a good journal
A journal will facilitate the use of a good plan before and after trading. This journal must be recorded will all relevant information including realistic goals, best forex platforms, time frame to archive the required profit to remain a float and relevant in the forex trading markets.
- Period of timeframes
When trading for profit, a longer timeframe is more profitable as it attracts less forex trading rates. The charts should therefore be over 30 minutes. High frequency involves more fees hence more expensive to speculators and lower profit margin. Once you choose the timeframe strategy it’s recommended you stick to that strategy to avoid operating outside your journal and in the long run resulting in a capital loss.
- Setting stop losses and use diversification
Setting stop losses is very important and a must have strategy. It allows you the trader to fix the size of potential losses at the certain margin. The investor therefore doesn’t lose his/her fortune past the stipulated amount. This tool lets the trader focus on state and trends of the market. You should also make use diversification as a way to reduce the risks in online foreign exchange trading. By trading currency pair you will be able to produce little input signals. To eliminate risk in trading, it is advisable to diversify your transactions between various currencies.
Conclusion
Forex trading is a sure way to maximize return on investments for both short and long-term. It is a good investment to try out despite the high level of risk. If you trade using a trusted forex broker and implement all the 5 steps we have discussed above you will surely reduce the risk associated with forex trading. Strike prices will facilitate your break even and make your account rich beyond imagination.
