Just like its advantages, forex trading also involves risks in various forms. Factors including sophisticated regulations and external market forces create a challenging environment for forex traders.
Being highly volatile, it’s important to ensure the safety of your funds even if a sudden downward trend hits the market. However, many investors and traders do not know how to protect their open positions. Fortunately, some simple strategies can be used to effectively manage the downside risks in markets. These strategies include buy stops, buy stop-limits, sell stops, and sell stop-limits.
Most investors can benefit from implementing a stop-loss order which is limits an investor’s loss on a security position that makes an unfavorable move. A key advantage of using a stop-loss order is that the trader need not monitor the holdings daily. However, as the opposite side of the coin, a short-term price fluctuation could activate the stop and trigger an unnecessary sale. Sell-stop orders protect long positions by triggering a market sell order if the price falls below a certain level.
Another important way to limit day trading losses is to manage your risk on individual trades. You should never risk more than 1 percent of your balance on a single trade. When you’re coming up with your day trading strategy, decide how much you can afford to risk each day. However, always keep in mind that if you decide to create a stopping point based on your average profits, the amount you can afford to lose will increase over time as you improve your skills.
Risk Warning: This material is considered a marketing communication and does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. Trust Capital TC Ltd does not take into account your personal investment objectives or financial situation. Trust Capital TC Ltd makes no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast, or other information supplied by an employee of Trust Capital TC Ltd, a third party or otherwise.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81.48% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Trust Capital TC does not offer Contracts for Difference to residents of certain jurisdictions including the USA, Iran, and North Korea. Please consider our “Risk Disclosure“.