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Forex market is where people earn a lot more than any other market and hence, lose much more than any other market as well. You must remember that one person’s profit is another person’s loss. As much as you try to not be the loss-making person, everyone makes losses once in a while. The trick is to exploit this amazing profit reservoir called Forex market with the best risk-return ratio.
To be successful in making enough profits and mitigating your losses, you must take care of the following points –
Risk Measurement
It is right when people say that ‘Higher the risk, higher the rewards’ but there is a limit to a number of risks you can take. Assume that you get to know about some information which makes you believe that today is a very good day for the market; you expect the market to show a drastic reaction to the news.
So, what do you do? If you are one of those who put their entire money in the market, banking on their hunch, then you will not be successful for too long. The key to being successful in Forex trading is to balance your risk and employ good management of your funds. Your portfolio must be diverse to prevent instant wipe outs and ensure a steady income. It is proven that, in the long run, it is not a risk-taking attitude that succeeds but a balanced one.
Leverage
Again, this is something which brokers conveniently omit in telling their traders. An increase in leverage increases your profits but it also increases your risk. Approximately 2% of your entire account is considered to be an acceptable level of risk because it ensures that you have something left, even if your gamble doesn’t pay off. Leverage can be a two-way sword, it may benefit you and it may end up killing your position.
Thanks to brokers and their sandcastles of promises, people have grown used to fake stories of infinite profits. It is your duty, as a trader, to investigate everything your broker tells you and not believe in promises blindly. There are many sources from which you can find out about Forex trading like newspapers, the internet, online finance journals, finance magazines etc. Your aim must be to avoid losses at any cost; this is not a pessimistic eye to look at Forex but a realistic one.
