Thread: what is Risk management

what is Risk management

managed forex trading is extremely popular in the investment marketplace at the moment. With various

investment companies offering individuals the ability to opt for a managed fund, beginners may benefit by putting their money in the hands of an

experienced broker so that he or she can make the most of what they have!

Managed forex trading accounts are accounts opened with a broker who would then manage the forex trading

for the individual.

Risk management is a topic that many forex traders do not take seriously enough. In fact,

risk management is probably the single biggest factor that is over looked amongst forex traders and this

is the biggest reason why 95% of them fail to make money over the long term. The reason that so many traders ignore managing their risk or developing

a risk management plan is simply because they don’t feel like they need to. Many forex traders think that their system or their trading method is so

accurate that they don’t need to manage their risk because they believe they will win on a very large percentage of their trades. The truth is that

this is a false belief and it is simply emotional trading and illogical thinking as a result of fear and or greed.

Professional forex traders understand that at best they will win on 60-70% of their trades, they

understand they will lose on any where between 30-50% of their trades. If you knew you were going to lose something 50% of the time why would you not

manage your risk? The simple answer is because novice forex traders do not understand the concept of position sizing and they are trading based off

emotion.

Position sizing is simply adjusting the number of lots or contracts you trade to stay within a pre-defined risk threshold while placing your stop

loss at a safe level. Let’s dig into that sentence piece by piece. Many traders make the huge mistake of having a certain dollar amount in their mind

that they are willing to risk before they enter a trade. They then buy or sell a number of lots that is equal to or greater than that dollar amount

of risk. After that they will arbitrarily put their stop loss in mainly because they have heard you should trade with a stop loss. This is not an

effective risk management scheme, in fact it is basically gambling but it is exactly how, or similar to how most forex traders enter a trade.

To effectively utilize the power of position sizing you must first understand that it is absolutely necessary to have a set risk percentage that you

are emotionally ok with losing on any one trade. Most traders cannot operate emotion free after losing more than about 3% of their account value on

anyone trade. As such, risking 2% or less is the recommended amount for any trader and you will be hard pressed to find any professional short-term

or swing forex trader risking more than that on anyone trade, this is because they understand the importance of risk management and have already lost

enough money to know they cannot control the market. So now your risk is at 2% of say a $5,000 dollar trading account. This means you can risk $100

on any one trade that meets your criteria for a valid trade setup.

So here is where position sizing, risk threshold and stop loss placement come in. Once you find a trade that meets your trading plan entry criteria

you then need to find the safest place for your stop loss, after you find this level you calculate the distance between it and your entry level.

Let’s say this distance is 150 pips, this means you can still only risk $100 but you must now adjust your position size down to meet your risk

threshold. An advantage to forex trading is that you can trade mini and micro-lots at many brokers which essentially means you have extreme

flexibility in position sizing. So to meet your 2% risk threshold and maintain your 150 pip stop loss distance you can only trade 0.66 micro lots,

which means you are trading .66 cents per point. .66 x 150 = $99. It’s important to stay just under your risk threshold if it comes down to being

slightly under or slightly over; if you traded.67 cents per pip you would be risking .67x150=$100.50, which is over 2% risk, you want to avoid this

because it will induce an emotional reaction that will very likely snow ball into a huge emotional roller coaster of trading errors.

.

We offer managed forex accounts for high net worth clients. Please contact us for details!


Managed Forex Accounts

For More info

managed forex accounts


Regards
Frank Gollier
Forex Portfolios Management

[/size]

I don’t agree mate, I don’t think it’s that popular and it’s not even much profitable so how will it be much popular? I believe that Forex trading is so much profitable, if we do it by our own methods and style, but if we try to copy others or go with management of funds then it won’t be too much profitable.

I believe Forex is great with self trading and I also agree that risk management leads to profits, but lack of it can easily lead into failures. I am fortunate that having 50% bonus on deposit will really help us to make proper risk management plans and that will automatically higher our chance of getting profits in a really easy way.

risk management in forex trading is very important, with a good risk management will allow us to trade with the maximum. For that we must be able to always use SL when trading that will allow us to manage risk in forex with good

In forex market you have to take risk, but you can manage your investment from getting eroded away by taking calculated risk or by placing your trades in such a way that you can predict risk.

Losses are common for most forex traders, even for the most experienced, and the key to becoming a successful forex trader is to manage your risk.As a forex trader, there are many things that you can do to increase your profit potential and reduce risks:

• Understand the risks involved in leveraged forex trading
• Make a trading plan and stick to a strategy that works.
• Keep up-to-date with market conditions
• Use Fundamental and Technical Analysis.
• Know when to close a trade and take a loss
• Use trading tools such as stop orders to manage risk

manage the risks in forex is to be done. because we are doing a good risk management then we will be able to trade with the maximum. we can use SL when trading. In this way a greater risk could have minimal well