Top 15 Risk Management Tips for Forex Traders

Forex Risk Management Explained

Risk management involves identifying, analyzing, accepting and/or mitigating trading decision uncertainty. Since forex trading entails taking considerable financial risks, risk management plays an important role in successful currency trading. 

Prudent forex traders generally incorporate established risk management techniques to help them weather the currency market’s inherent volatility, deal with uncertainty and limit their market exposure when carrying open positions. 

Many traders who lose money trading forex fail to exercise sound risk management techniques, although inexperience and a lack of market knowledge can also contribute to their losses if they are new to trading. Successful traders typically find that risk management is one of the most important components of their trading plan.

Top Risk Management Tips for Forex Traders

Since trading forex has more in common with gambling than investing, employing sound risk and money management practices that many prudent gamblers also use can contribute to your success. Benzinga has selected 15 top risk management tips for forex traders that appear listed below.   

1. Educate yourself about the forex market and its risks before trading live.
2. Develop and stick to a prudent trading plan in a disciplined manner.
3. Test any trading strategy you plan to use before risking real money. 
4. Never risk more than you can afford to lose.
5. Choose a sensible risk/reward ratio. 
6. Change your trade amount depending on the risk involved. 
7. Limit the use of leverage to prudent levels. 
8. Set specific entry and exit points on your trades in advance. 
9. Use stop-loss orders to quickly close out losing trades. 
10. Use take-profit orders to lock in your gains at realistic target levels.
11. Use trailing stops on winning positions to protect profits.
12. Identify and prepare in advance for the worst outcome.
13. Exercise restraint so you don’t overtrade. 
14. Learn to control your emotions when trading.
15. Only trade currency pairs if you can keep in touch with their fundamentals. 

Finally, Benzinga offers many great resources for currency traders, including detailed articles on forex risk management written by experts in the field.