Why is it important? In fact, we are in business to make money and to do so we must learn to manage it well to prevent the continuous loss. Ironically, one of the most neglected areas in business. Many traders are just like right on the market without regard to their total account size. Simply determine how you can lose in a single transaction and get on the market.
In currency trading, the investor has the opportunity to multiply their money, but also risks losing future income, and more investment. Deviation from the average profit expected is what determines the risk of investors in the financial market. Risk management methods are applied before and after open positions. The primary method of risk management is applied to reduce losses.
The use of risk control protective Stop-Loss
It is advisable to place a stop-loss protection for each open position. Stop-loss is a point where the trader leaves the market to avoid a disadvantage. When you open a position, recommended the use of stop-loss protection against future losses.
While in active trading, which is good to protect your money against loss of potential. This is the subject of money and risk management. Too often, the merchant is overly concerned about incurring start losing trades. Operator makes it possible to mount the losses, hoping that the market will turn around and the loss becomes a gain.
Almost all successful trading strategies include a disciplined procedure for cutting losses. When a trader is in a position, many emotions often come into play, it is difficult to reduce losses in the law. The best practice is to decide where losses will be cut before a trade is even initiated. This will ensure that the operator of the maximum amount he or she can expect to lose in the trade.
Tolerable risk has a role to post-trade
To manage your money well spent, you have to decide before the opening of any position on the amount of money you can afford to lose if the trade goes to the negative projection. For example, you may decide that the risk for each open position money is 3%, 5% or 10% of the total funds, in doing so have known before the execution of the trade that most can not get your money This unique position of negotiating to do, took the emotion.
Necessary factor for the development of this are:
1. The balance of the funds in your account.
2. The number of seeds set a stop-loss.
3. Lot size (volume) stock exchange.
For example:
Let's say your balance is $ 5,000 and your Pip default is to stop the loss of 50 pips (selecting the number of your stop-loss is due to seed research analysis) and is willing to risk 2% of money to a position.
What do you do?
Work in 2% of $ 5000
What is = $ 100.
This means you can afford to lose $ 100 in case of any eventuality.
Then divide $ 100 by 50 pips
That will be $ 2
The size of the lot is $ 2 per pip. The lot size is 0.2.
What to use 0.2 lot size.
Whenever possible, try not to be greedy, to be less demanding in order to minimize risk.
Somehow leverage can help control risk: If your influence is relatively low, which limits against the opening of trade with the batch size higher.
Re-evaluate their strategies
The other key element of risk control is the overall risk of the accounts. If the trade goes against you, how to stop and reevaluate your trading strategy? Is that when it lost 30% of your money, or 50% or 80% or when you've lost money together? Assess the market analysis and see if there is still need for perfection or even a change.
Also, check your whole batch size is too large for the size of the entire account.
Risk management and fund management go hand in hand, if you manage your FUNDD well as reduce risk, even if control of their own risk and you are also protecting their funds.
