Tips to Stay Safe Trading Forex

Tips to Stay Safe Trading Forex




Trading Forex can be immensely profitable provided you have a solid trading strategy and the self-discipline to stick to it. Most people who are new to forex, however, come in with dreams of success, yet ignore the basics required to stay safe trading forex and aim for long-term profitability. In other words, they blow up their accounts in record time. Over-leveraging, market illiquidity, and unexpected events can all put a huge dent to your trading career, so it’s generally a good idea to get to know certain aspects of the forex market beforehand.

Lower Your Risk Exposure

Your forex broker gives you the option to trade almost any currency pair, provided that you have sufficient account balance to cover the minimum margin requirements. That doesn’t necessarily mean that you must have all your capital exposed all at once. Forex is a long-term investment, and going all in with your entire account balance doesn’t bode well in case your position goes south. Always consider risking a fraction of your capital – around 2%, for example – per trade so that you have many chances to let things play out over time.

Don’t Over-Leverage Your Positions

The sheer amounts of leverage provided by forex brokers allow you to open significantly larger positions than your account balance. While you can earn huge amounts of profits with finely-placed trades, the chances of blowing up your account also rises in direct proportion. Always keep a significant amount of margin in relation to your positions just so that the trades can work themselves out – remember that currencies move in waves, and you need that extra margin to prevent your positions from getting stopped out automatically.

Trade At Specific Time Periods

While the forex market is indeed open 24 hours a day, there are various time periods that you’ve just got to stop trading due to low liquidity. For example, you can’t expect the euro to have any decent levels of liquidity during the Asian session, so trading the EUR/USD at that time period isn’t usually the best of ideas. Low liquidity translates to wide spreads, erratic movements, and incorrectly filled orders, so only trade your favorite currency pair when liquidity is at its most.

Trading Forex

 

Avoid Correlated Currencies

Trading correlated currencies is one of the most common mistakes that certain traders make. While the forex market consists of multiple currencies pairs, placing trades in correlated pairs doesn’t bode well since they mimic the same fluctuations and movements. For example, trading heavily correlated currencies such as the EUR/USD and the USD/CHF translate to twice the risk exposure that you’d normally have, since a losing position in the former almost always results in a loss in the latter.

 

Avoid News Releases

Unless your entire trading strategy revolves around trading volatile news events, keeping positions open during a high-impact release such as the U.S. Non-Farm Payrolls report doesn’t bode well for your account balance. Significant and rapid fluctuations combined with platform freezes can result in loses way beyond your initial capital investment. If you still want to consider keeping your positions open during a volatile news release, consider using stop-loss orders to mitigate the risk involved.

 

Factoring Them In

At the end of the day, it’s always a good idea to build your entire trading strategy by taking into account each of the factors mentioned above. Whether it’s high leverage, illiquid market conditions, volatile news releases, or heavily correlated currencies, factoring them in beforehand should ensure that you don’t lose your money unnecessarily. Finally, you must always keep an eye out on the technical side of things such as server latency and price slippages, and resolve those issues with your broker before you begin trading.

*Please Note, Binary Options and Forex trading can carry a high level of risk to your capital as you could lose all of your investment. These products may not be suitable for every investor, therefore ensure you understand the risks and seek independent advice. Invest only what you can afford to lose. We are NOT financial advisers and we do NOT offer financial advice.