Forex Trading Library

Know how much risk you can afford to take when trading

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Many ex- currency traders have had the unfortunate experience of having their trading account blown out by their tendencies to indulge in excessive risk taking. This sad fact underlines the need for appropriate position sizing, disciplined stop loss order placement, and adequate pre-trade risk/reward analysis as part of a prudent risk management program. Most retail forex brokers will automatically close out your trading positions if your account’s margin balance is insufficient to cover the trades that you currently have open. This can result in you locking in a significant trading loss, when your positions might ultimately have been profitable if they had not been automatically closed. Part of knowing how much risk you can take involves managing your margin trading account wisely to avoid such a situation.

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