FX Trading Guide to Managing Risk in the Marketplace

NEW YORK, March 15, 2012 /PRNewswire/ --

Forex trading is one of the most heavily traded markets in the world with all major currencies being typically traded against the US dollar (USD).

As one of the largest and most liquid, the foreign exchange market is also one of the most accessible.

Also referred to as forex, retail forex or simply FX - it offers traders the potential to trade short-term market volatility and also medium or long-term price trends.

However, there is a substantial level of risk involved with trading FX, and significant potential for losses.

With this in mind, it is important to manage your risk whilst trading. Below, FX Solutions LLC guides you through the various steps you can take to potentially manage your risk exposure.

FX Trade Sizes

During times of quick price movements in volatile markets, traders can sometimes act on impulse; opening positions without thinking logically about entry and exit points, stop loss positions and so on.

Trading forex on impulse can lead to ill thought out trades that, as a result, fail to meet expectations.

With this in mind, it is fundamental to your trading success that a trading strategy is in place to help protect you at times such as these.

A clear and concise strategy can help keep you focused at times where emotion has the potential to take over.

Limit your Losses

As mentioned above, when traders act on impulse, they can forget to consider crucial risk management tools such as their stop loss orders. These orders should be considered on every trade you make.

Automatically executed by a pre-determined price point set by you, stop losses aim to limit your losses, depending on the level at which they are executed.

Through your trading strategy, you will consider what you are willing to realistically lose or risk and this is typically where you coordinate your stop loss order level to. Please remember that due to market movement, stop loss orders may be executed at prices worse than the requested price and result in losses larger than desired.

Analyze the Markets

When considering technical analysis; remember that the methods of utilizing technical analysis are many and varied.

On the other hand, fundamental analysis offers a range of potential catalysts to take into consideration; from major economic reports, news and events to natural disasters.

Regardless of a traders' analysis style, historical data - such as price movements - and past news feeds should be fully analyzed in order to gain a clearer picture of a particular market/currency.

Diversify your risk

Whilst it is advised you only trade currencies you know, many traders find it safer to speculate on a number of different pairs and "diversify their trades."

To help diversify your risk, increase your knowledge of a range of currencies beyond your typically traded forex pairs by utilizing the various forms of analysis mentioned above.

Summary

FX trading involves a substantial level of risk and is not suitable to all investors. Prior to trading, put in place a trading strategy and gain extensive knowledge of your chosen currency. When you start to trade, utilize the various risk management tools available and be realistic in your trade sizes.  Risk management and diversification do not assure a profit nor necessarily protect against loss.

Find out more about learning to trade forex with FX Solutions: http://www.fxsolutions.com/learn-to-trade/

About FX Solutions:

FX Solutions, LLC is a leading foreign exchange broker with a focus on advanced trading technologies, transparency of transaction and unparalleled customer service. FX Solutions serves retail clients institutional trading partners and introducing brokers in over 100 countries.

For more information, please visit http://www.fxsolutions.com/