What is risk management?

Risk management is one of the most important topics that every trader should not take lightly or skip in their learning journey. With risk management, you are able to reduce on the level of risk in the market since it cannot be avoided.

Is risk management important to a forex trader? Yes, more than you can imagine!.

For every business to successfully operate, we must expect some risks along the way in one way or the other. But you cannot sit and wait till such risks happen and then think of how to deal with them.

Sometimes it may be too late and  great damage has already occured that cannot be recovered. That’s why we need a plan on how to manage those risks or insure them to cover the damage.

So to profit from forex, you must be willing to risk. I mean the way to make money in forex trading is to risk. In order to gain the highest return, you have to take a greater risk. On the other hand you also need to reduce on the size of probable potential losses.

The difference comes on how you determine the risk and manage your risks inorder to stay profitable.

The money market is highly unpredictable so anything can happen in the market at any point. Just small news can make the markets go volatile within just a moment and you may end up losing a big amount from your account if you hadn’t managed your account well. So you have to always be ready.

However much you are risking the money you can afford to lose, you should have measures to protect your account from sharp losses

Do not trade like you are in a casino gambling house. Forex is not a game for the gamblers. You need some rules, money management and a trading plan to trade forex and profit from it.

It doesn’t matter how skilled you are or how perfect your system is? Without risk management you can still blow your account.

Have risk management rules well stated on your trading plan and develop a habit of following your trading plan always, every time you enter a trade. This is the only way to make consistent profits in the market.

 

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