Forex Tutorial: Risks management methods - When trading, a Forex investor can multiply capital, and the risks to loose not only potential earnings, but the invested money as well. The deviation from an average expected yield determines the investor’s risk on the financial market.

 This kind of deviation can bring high profit as well as great loss.

Financial risk management doesn’t offer a successful trading guarantee, but assembles important parts of it. Each currency operation is a risk. That’s why using general management methods decreases potential loss.

  1. 1. Stop-order submission;
  2. 2. Capital share investment;
  3. 3. Trend line trading;
  4. 4. Emotion management.

Risk management methods are used after positions are opened. The main risk management method is an order submission that restrains losses.

Stop-loss (literally means to stop losses) – is a point where a trader goes off the market to avoid a disastrous situation. You have to set a stop-loss when opening positions, in order to prevent losses.
There are several types of stop-signals:

  • An initial stop signal – determines the deposit amount or interest rate that the trader is ready to lose. When the price moves toward this position and reaches it, the trader’s fixed level position closes, not exceeding the loss preset by the trader.
  • A “trailing” stop signal – is when a price move towards a position, and a stop signal is set right after it, according to trader preferences. Should the direction change, if the price reaches that signal, the trader goes off the market, potentially earning profit (depending on when the price started moving).
  • Profit dismantling – is when pure profit has been earned, and the position is closed.
  • Stop signals at times – is when, in the course of time, the market is not able to earn the necessary profit, then the position closes.
source: instaforex

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