Forex trade is now very common with most people opting to put their surplus capital in it. That is because it is a rather easy investment to venture into. All you require is to have access to a computer plus a fast network or connection. However, the trade can only be lucrative and profitable for you if you do the right things.
The following article delves into 9 forex management tips you can employ as a professional or beginner forex trader to ensure imminent success.
1. Train and Educate
This is more so in the areas of forex risk and trading. This applies to both professionals and beginner traders. There is no end to learning and training oneself on how the forex market operates, and how you can trade effectively to ensure maximum returns. Use the demo account to polish your trading skills and try to study the market before launching your forex trade.
Also, you must educate yourself on forex risks so that you make an informed trade decision having considered the forex risks and how they impact forex trade. Learn the various types of risks, and relate them to forex trade.
2. Utilize Stop Loss
With a stop loss, you are able to define the price level where your trades robotically close. Therefore, the predefined price protects you from unforeseen market fluctuations. Hence, if you enter a trade anticipating an increase in the value of an asset, and the contrary ensues, then the stop-loss price shall protect you from losing too much.
However, it no guarantees that the stop loss price will always work. A phenomenon known as slippage occurs where the stop-loss price does not work the first time but becomes effective in the second round of trade. Set your stop loss such that it is equal to or less than 2% of your exchange balance. Never increase your expected loss margin.
3. Utilize Take Profit
A predefined take profit level automatically ends a trade once it has arrived at the set profit point. The ability to set the profit levels enables you to establish the amount of risk to expect in a given trade.
The reward-risk ratio must be set early in time before you enter a trade. The ratio is often set such that it is above 1:1, and the most ideal reward to risk ratio is where the reward doubles the risk, such as the 2:1 ratio.
4. Avoid Risking Too Much Than You Are Willing to Lose
Forex trade can be very unpredictable. Winning today does not imply that you will always be a winner. Therefore, you should not bet all your money in a forex trade only for you to lose it all. Therefore, set the amount that you are okay parting with; an amount that if you lose will not cause a drastic change to your way of life.
5. Limit Leverage Usage
Leverage utilization is where you trade using more than your actual deposited amounts. That is because your broker has allowed you to use the amount that obviously you must repay the broker. You should limit its usage as you may lose it all as forex trade is unpredictable.
6. Set Realistic Profits
You should ensure that you have set realistic and achievable profit levels in a trade. This ensures that you enjoy steady yields from a trade. However, setting unrealistic profits will make you take up excessive risk which will ultimately lead to drastic losses. You may end up exiting the forex market with losses only. Therefore, be realistic and set achievable profit levels.
7. Control Your Emotions
Forex trade requires that you trade with a sober mind. Think through the trade before you invest your capital in it. An earlier investment you may have made on your account may have yielded great returns. However, it does not imply that you are an exceptional investor and that all your investments going forward shall be profitable. Therefore, do not lie to yourself by investing all your money as you may end up losing it all.
Also, in the event that you have traded and lost, do not think that you can recoup the lost amount by investing large in a consecutive trade, as you may lose again, which will double the loss. Therefore, do not act or trade on emotions.
8. Prepare for The Worst
Do not be over expectant of a trade. Always expect anything to happen, so that you are not left disappointed when trades turn out differently than expected. Therefore, know that the trade’s outcome can either be loss or a profit and that you are okay with the results. The factors that will help minimize the negative impact of trade are stop loss and take profit points.
9. Diversify Your Portfolio
Portfolio diversification in forex trade could imply trading in various types of currencies and not trading in a single currency. This enables the spread of risk and increases returns from the winning currencies.
The above 9 pieces of advice should help you achieve your forex trade goals. They are simple to understand and apply in your trade.