Forex trading is an exciting way to make money using your own intelligence and skill. One of the most important elements of making money in the market is the ability to minimize your risk. In this post, we will explain some guidelines for how to do that while making a profit.
The forex market is like any other financial market in that the best strategy to control risk is diversification. Do not invest large sums in one currency pair, and be careful about how much you risk on a position in any given day. If that one prediction goes bad, you are out a lot of money. Even if you are sure that you have made the right call, put some money in some unrelated positions so that you have a backup in case things go wrong.
It is also a good idea to make hedges. A hedge is an insurance position. The hedge is significantly smaller, and it only makes money when your main position busts. The hedge lets you recoup some of your losses, reducing the risk on any given position. You give up some profits if your main position succeeds, but the risk reduction is worth it.