Risk management methods
Working of Forex market an investor is able to multiply his assets but at the same time he run risks to lose not only the profit but the invested money too. It is the expected profitability deviations that correlate with investor’s risks.
This deviation may lead to both results profit and loss.
Financial risks management is not a guarantee of successful trading but it is a part of it. Every currency operation is a subject to risks thereby the usage of general methods of their management may increase potential losses:
- Placing of stop-orders
- Investing the part of assets
- Trading by the trend
- Control of emotions
Risk management methods are used after the position is opened. The major method is placing orders that limit losses.
Stop-loss is the exit point for a trader to leave the market in case of unprofitable situation. One should set the stop-loss parameter while opening the position in order to prevent extraordinary losses.
There are several Stop-loss signals:
- Initial stop signal. This method is about to determine the percentage or the absolute value of the part of deposit that a trader is not afraid to lose. If the price moves against the limit set by the trader the position is closed with a certain loss.
- Trailing “Floating” stop signal. If the price moves towards the desired position the stop-loss point is set after it in fixed by the trader ratio. In case the price changes its movement direction it reaches this point and the trader quits the market but with potential profit (depending on when the changes began).
- Take profit. After the expected profit level is reached the position is closed.
- Time stop signals. If for some certain period of time the market is not able to provide a trader with the profit expected the position is closed.