3 Tips On Avoding Forex Market Risks
Foreign Exchange market is very dynamic. With that comes volatility and dangers to traders’ accounts.
Below we give a few tips about staying clear of forex market dangers.
1. Never over-leverage your account
At many forex brokers, leverage of 100-1, or even more, is allowed. It means that with as little as $1,000 in equity, a $100,000 trade can be made. In that case, if the currency you bet on moves 1% against you, your account will be wiped out.
Even with leverage of 10-1, 1% move leads to a 10% loss. That still is large. It’s okay to use leverage like that, but you should not let that 1% move in a currency happen. So, you need to exit the trade before it happens.
2. Place stop orders
Stop orders are designed to protect your account’s equity. The issue is that if the stop order is too tight, your trade may be prematurely closed. Your stops need to be reasonable, yet you should not risk too much.
Another issue is that if there’s a volatile currency move, your stop order will get triggered, but there’s no guarantee that your exit trade will get executed at set price. Your loss may be worse.
There are guaranteed stops offered by some forex brokers. Basically, your stop price is guaranteed no matter what. However, these orders are more expensive to place. Thus, you need to decide whether to take more risk with a plain stop order or pay more for a guaranteed stop.
3. Consider not trading during times of major announcements
Major announcements include central banks changing interest rates, or major economic reports about GDP growth, debt, trade balances, and so on.
Prior, during, and shortly after these announcements, the trading activity often increases. This leads to higher volatility. If you’re a less experienced trader, you may consider skipping these periods.
The best way to find about about upcoming economic events is to look up the Economic Calendars, which nowadays are provided free of charge by most online forex brokers.
By staying clear of forex market dangers presented here, your chances of protecting your account increase, so you’re there to trade the next day.