Protect your Investment
Forex and CFD’s are leveraged financial products and carry a high level of risk. Inexperienced traders usually fall into the same pitfalls when trading for the first time: Fear, unfamiliarity with the tools of the trading platform and the absence of a foolproof risk management strategy.
We are actively interested in educating investors about the risks involved in trading. These risks are substantial and can result in the loss of all your invested capital.
Here are a few steps you can follow to improve your trading experience and avoid common mistakes:
Be Aware of Your Leverage
Leverage is used to significantly increase the potential returns an investment can bring. To trade $100,000 of currency, at a margin of 1%, a deposit of only $1,000 is required for this account. The leverage provided on a trade as such is 100:1.
Leverage also works the other way around, when the market moves against you, by greatly amplifying your potential losses. To avoid this, forex traders usually implement a strict trading style that includes the use of stop and limit orders.
Be sure you understand the impact leverage can have on your potential winnings and losses.
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A trader needs risk management to effectively measure and assess his investment decisions and act accordingly to protect his account balance and minimise his losses.
Before trading you should know:
- How much money you are going to invest/risk
- How you will protect your capital
- How to spread your risk to further minimize risk
For example, if you have an account balance of $10.000, you should know the percentage of funds you would like to risk before trading.
Let’s say you decide to use 6% of your balance. This number might sound small, but if the 10 trading positions you chose to open to spread your risk are returning losses and you have no protection in place, you will see your balance reduced to almost half very fast. It’s not uncommon to see this in a regular trading session. How much you decide to trade will directly affect your overall exposure and potential winnings or losses.