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How to Minimise the Risk of Losing Money as a Forex Trader

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There are several staggering statistics surrounding the forex market, which is estimated to be worth a staggering $1.93 quadrillion. This sum is 2.5-times larger than the global GDP, whilst it’s unlikely to decline in size any time soon.

At the heart of this market’s popularity is the fact that traders can leverage competitive margins to boost profitability, but people often forget that it’s also possible to lose more than your initial deposit through forex trading.

With this in mind, it’s key that you seek out viable ways of minimising risk and loss over time. Here are some steps to help you achieve this:

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Image: Webaroo.com on Unsplash
  1. Use a Reputable Broker and Try a Demo Account

As a starting point, you’ll need to identify a reputable broker that’s fully licensed and regulated by the Financial Conduct Authority (FCA).

The reason for this is simple; as despite its size the forex market is a largely unregulated space that creates an opportunity for rogue brokers to claim a viable share of the action.

One key thing to look for is a demo account, as this is indicative of reputable broker and is also capable of allowing you to hone your trading strategies over a period of up to six months.

As a result, a demo account enables you to bridge the gap between theoretical knowledge and practical understanding, as you look to determine the best strategies and most profitable strategies.

Photo by Austin Distel on Unsplash

 

  • Start Small and Scale Over Time

 

When you do start trading for real, it’s important to adopt a conservative approach before looking to scale your efforts organically over time.

This means that you only look to increase your spend in line with your success and experience, which can play a pivotal role in minimising losses from the outset and preventing you from losing from than you can realistically afford.

On a similar note, we’d also recommend implementing practical risk management measures as part of your account. Stop losses can prove particularly effective, as they enable you to automatically close a position once a predetermined level of loss has already been achieved.

 

  • Use Reasonable Leverage

 

We’ve already touched on leverage, which provides forex traders with a unique opportunity to generate large profits with a relatively small cash investment.

It’s important to note that leverage can also amplify losses in the event of failed trades, however, so you should try to adopt a balanced approach that helps you to manage your account balance effectively.

When used responsibly and basing your position size on a real-time account balance, leverage provides the potential growth without causing you to risk significantly more capital than you can afford to lose.

 

 
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