Minimizing Risk In Forex Trading

A long time ago, I met with a friend from USA in a forum on investment. He asked me, what kind of investment did I do. Because I am a forex trader, I said that of course, my investment in forex trading. However, he seemed skeptical in regard of forex trading. He mentioned that  investment in forex trading is very high risk.

Thus, I asked him, why he thinks that forex trading is very high risk. According to him, there are two reasons that made risk in forex trading became too much. That is: extreme leverage and forex broker scams. I respected his opinion on the matter. Nevertheless, I think there are ways to get around the two risks.

minimizing risk in forex trading

Risks of High Leverage

Minimizing Risk In Forex Trading-It is true that many brokers offer fantastic leverage. We know that leverage works to boost our power to trade. The higher the leverage, the higher our power in making trades. Of course, brokers are vying to be the one to offer higher leverage, because they too are competing between one another.

It is all right if you want to accept their offer of high leverage. But we also have to remember the basic principle of investment: the higher the profit we expected, the higher the risk that we have to bear.

To minimize risks related to leverage, there are some tips you could do:
1. Adjust quantity per trade with the real amount of our balance.
2. Control used margin and available margin to anticipate worst-case scenario.

Basically, it is all back to margin and money management. Tailor the leverage used in your trading account to reflect your trading style. Personally, I am still using 1:100 leverage because I have became accustomed to it and feel comfortable with it. Therefore, the amount of leverage that you will use is actually up to you.

Risks of Forex Broker Scam

Who will not feel upset when after one works hard from day to day, he or she then unable to withdraw any funds from his account? The bad news is, there are many brokers out there that might refuse withdrawal application on pitiful excuses, or delay it to indefinite period. Humph, that was so annoying. Not to mention the various other ways brokers could scam us.

To avoid wicked brokers and scam schemes, of course we need to check the legitimacy of our broker. We should ascertain first whether they are bonafide or not. There are many ways to do that; some of them has been compiled by my friends in this article about how to choose the best forex broker. Privately, I prefer to ask my friends who are more experienced in forex trading about a broker's "honesty" before deciding to join them. That was much easier than searching for the informations by myself.

Well, those are some things we could do to minimize risks in forex trading. Nonetheless, the end result of our trades will be influenced by many factors, including trading system, the strategy we used, our discipline in following trading plan, and psychological drive. There are no investment without risks. It is our responsibility as traders and or investors to understand and manage those risks. Warren Buffet once said, "Risk comes from not knowing what you are doing". So, understand well before you decide to do something, not excepting the risks of an investment.(seputarforex)