Сoncept of risks

  • Apr 23 2021
  • by
  • Analyst AZA
Сoncept of risks

A brief review of the concept of risks

From the economic point of view, the risk is a certain possibility for a trader: it is nothing more than the probability of incurring financial losses or not earning a profit instead of the expected outcome.
By accessing the international forex market, most novice traders are waiting for instant and impressive revenue, but in turn, they do not think about the high risks that are somehow present on the exchange.
To prevent mistakes and play with profit, let's perform a brief overview of the main forex risks.
So, first of all, there is a risk associated with changing quotes on Forex.
Any trading is based on the principle of buying or selling certain services or goods.
On the forex market, the role of such a commodity is precisely the currency.
In other words, there is a currency exchange in the market: one for the other to generate income due to the price difference (the main principle is to buy cheaper - sell more expensive).
That is, we buy currency, we wait until its rate rises, and then we realize: hurray, here it is such a long-awaited income.
The change in the exchange rate is made every second, and to obtain a win, we need to perform all trading operations (purchase or sale transactions) in the shortest time interval.
But, unfortunately, the stability of the exchange rate is affected by too many different factors and aspects. At what, some of them do not lend themselves to evaluation and forecasting.
To reduce the risks of loss of deposit funds, in the case when the trend is directed in the opposite direction from you (a negative change in the exchange rate), a player needs to adhere to such rules:
1) before opening a position it is important to preliminarily and in detail evaluate the behavior of exchange rates;
2) to enter the market only in the direction of the trend.
In addition to the fact that you evaluate the trend on the time interval you have chosen, you must also take into account the trend in the neighboring timeframes;
3) immediately after the positions have been opened, it is necessary to set a stop-loss, which will allow you to limit the possible amount of financial loss.
Result: if the trader can correctly identify the direction of the price, as well as set an order stop-loss, to minimize the risks: to protect themselves from the opposite trend movement, and therefore to protect themselves from changing quotations.
There is also a risk on the market, which is directly related to the choice of the leverage level (funds that a trader takes on a loan from a broker).
The size of the leverage can be different: from 10 to 1000.
But, the main advantage of this parameter is that the loan raises the amount of the deposit, and the funds are withdrawn to trade (for the transaction), allowing trading with impressive volumes.
With all the attractiveness of the leverage, its large size is its main risk.
The size of a loan is chosen by the trader and is limited to the brokerage company itself.
Transactions may automatically be closed if the amount of loss is equal to the amount of collateral.
This level of leverage, like 1: 500 and 1: 1000, facilitates the opening of transactions of even greater volume.
There is a double-edged sword: with the right approach and applying the strategy, understanding the risks, you can further increase profits, but also, as with opening positions with the maximum volume, you can easily merge the deposit.
To overcome the risks associated with leverage, we need:
- choose commensurate and adequate leverage;
- insure yourself against the occurrence of financial losses;
- risk only in extreme cases: when you are completely confident in the direction of the trend.
The third item related to risks is technical risks.
For example, a power outage: involves the terminal stopping and losing communication with the broker's server.
There is a way out uninterrupted power supplies that will enable (and most importantly, time) to close the deal.
- the Internet crashes or the software crashes - the software is broken or the trading terminal ceases to function;
You can try to install yourself a backup version of the software on a tablet or smartphone, and also consider for yourself the option of mobile trading (in case of emergency);
And of course, do not forget about such an important factor, as the preliminary installation of a stop-loss.
Also, when trading on the Forex market, do not forget about the risks associated with choosing a dishonest and unreliable brokerage company, as well as the negative impact of your own emotions: choose a proven firm with a good rating and try not to panic, control your impulses, and try to concentrate on the trading process.
General tips and recommendations for risk reduction:
- focus specifically on what you plan to do;
- to conduct trading solely based on arguments reinforced by arguments, not succumbing entirely to emotions;
- study and evaluate in depth the causes that cause the movement of the trend in the present time frame, as well as in the past;
- open positions only by referring to the verified information;
- Be sure to apply for stop-loss orders and trailing stop in the role of security instruments - insurance when opening a deal.
And, of course, do not forget that there is such a science as risk management forex: for successful, efficient, and profitable trading you need to adhere to the strategy of reducing the potential losses.
In other words, any exchange player who strives for success must comply with the rules of risk management:
1) open new deals when the situation on forex is clear;
2) be aware of the probability of incurring financial losses: the risks are present in the forex and they are an inevitable part of trading;
3) create your trading plan, test the generated method for optimality and profitability;
4) establish the limits of losses - the limit that you have the opportunity to admit, upon reaching this level, immediately leave the market;
5) try to conduct trading in the direction of the trend: if you trade against, the risks automatically increase;
6) use of the optimal size of the leverage: too high the value of the shoulder is associated with high risks of the risk of losing everything, even with minor trend movements;
7) establish an order stop-loss immediately after the commencement of trade;
8) if the price has changed direction, it is worth immediately closing the positions;
9) choose reliable and trusted forex brokers;
10) use uninterrupted and mobile applications;
11) to control emotions;
12) be able to leave the exchange on time.
Successful trading and minimal risk!

And, of course, do not forget that there is such a science as risk management forex: for successful, efficient and profitable trading you need to adhere to the strategy of reducing the potential losses.


imgaza youtube

Profitable trading recommendations, forex analytics for beginners traders

Subscribe our channel

top authors

Fundamental analyst

Stan Zabar
Fundamental analyst

Head of Analysis Department

Michael Wallenberg
Head of Analysis Department

Economic Observer

Alan Dofine
Economic Observer

Call US Feedback
en de nl fr pt es it uk zh ko ja ar ru pl tr