When different parties exchange goods or services between them, it is called trading. For example, you need to trade dollars to get the gasoline for the car. In ancient times bartersystem was called trading where one good had exchanged in terms of another. But things have changed a lot. Now you can trade the financial industry by accessing modern trading platforms. With the help of modern tools, you can easily trade the currency pairs and make a decent profit.
In this article, we are going to discuss some amazing steps which will help you to manage the risk factors at trading.
Present conditions of the market
In this era of the internet, ultimately, the risk can suddenly be out of control, and a transaction can occur within a second. The transaction speed, instant gratification, and profit-making take less than 60 seconds, and the traders may succumb within this time.
Traders’ speculation is not gambling. Risk management is the difference between speculating and gambling. In other words, the trader can have some control over it by speculating. As a trader, you will get unique access to the retail trading industry and make wise decisions at trading without having any major flows. So, it would be better if you learn to take advantage of the modern tools during the trading process. Chose broker like Saxo markets so that you can execute the trades and make a decent profit with the high level of precisions.
Know the Odds
Risk management’s first rule is an odd calculation of trade for being successful. However, to calculate the odds, the trader needs to grasp the technical and fundamental analysis. You will need to understand the trading market dynamics and know the position of psychological price trigger points. And a price chart obviously can help you to decide the trigger points.
Once the trade-taking decision has been taken, risk management or control is the most critical factor. Remember, managing risk would be easy if you can measure it.
Liquidity is the next factor that the trader should study in the next phase. Liquidity means that enough sellers and buyers are available to take your trade efficiently and quickly at current prices.
In forex markets, major currencies liquidity has never a problem. As a result, the forex market is known as market liquidity, and per day it is responsible for $2 trillion in trading volume.
However, liquidity at all currency pairs is not the same, and for all the brokers, it’s not available. And as a trader, you will be affected by the broker’s liquidity; if you deal with an extensive forex trading bank, your position is different. Otherwise, the broker needs to rely on an online broker for executing a trade and holding the account.
Risk per Trade
The available trading capital is another factor that determines another threat aspect. Always the risk per trade should be the total capital’s small percentage. Available trading capital’s 2 percent is a good starting percentage.
Loss per trade 2 percent means you need to wrong at least 50 times before wiping out your account. So, how we measure the risk? Using a price chart is the way of calculating risks.
Leverage is the next significant risk magnifier. Lending the money for your investment from brokers or banks instead of using your own money is called leverage. Again, the FX market offers leverage; here, you can deal $100,000 by even putting $1,000 from your pocket. And here, the leverage ratio is 100:1. Into a leveraged situation of 100:1, a pip loss is equal to $10. So, for ten mini lots that you hold, a loss of 50 pips will cost $500 instead of $50.
However, high leverage availability is one of the significant benefits of the spot FX market. The foreign exchange market is so liquid that there is available high leverage in the market, and it helps to cut the position quickly. In addition, the leveraged positions are easier to manage compared to other markets.
Every trade occupies risk, but the trader can manage it by measuring the risks. But do not overlook the fact that by using too much leverage, the market hazard can magnify. On the other hand, a trader can generate good rewards with a good trading habit and a disciplined approach. Moreover, another way to generate good profit is taking some risk.