Forex trading is considered to be a risky endeavor. From the definition of the forex market, you can see it is an unpredictable business. It’s merely a numbers game. It sounds a little lift, right? But, does this mean profitable currency trading is not possible? Well, certainly not. From the unpredictability of this business, what you should not expect is a 100%-win rate. Of course, that applies to almost every business. In currency trading, you should align your expectations to meet the behavioral characteristics of the FX market. That’s simply minimizing the risks.
For you to become a professional currency trader who makes a profit daily, you need to understand how to minimize the risk. Several ways can be used to achieve consistent profit. All these ways are based on spread betting. It’s because through this way, a trader has an excellent platform to get substantial gains from small movements in the FX market. That’s regardless of whether there are tighter fixed spreads or significant leverage in the market.
Additionally, spread betting provides an affordable gateway for traders by requiring them only to deposit a small percentage of the total amount they wish to trade. Well, this is one way you can use to minimize the risk in currency trading. Other ways include;
Trade higher timeframes
When trading, avoid the short timelines as they are less profitable, stressful, and time-consuming. The short timeframes include the minute charts, which lie between one minute to thirty minutes. Such a timescale is unpredictable and volatile. The long timeframes such as the daily chart or hourly chart offer you certainty when planning to trade.
Keep the leverage low
Regardless of the investment, you are in; leverage is a vital tool. Misusing this tool will either multiply gains or multiply losses. Leverage allows you to set the position sizes that you are capable of controlling. For instance, a leverage ratio of 100:1 will imply that for every $100 of your money, you can manage a position worth $10,000. That’s an ideal way of making high returns. Moreover, in case of percentage fall in price, your equity would not fall down to zero. Therefore, you got the risk covered.
Set the right stop losses and take profits
It is an essential decision in the entire FX trading setup; however, many traders set it arbitrarily. You may set this for every trade you make to cap the loss at a particular amount. Or the stop loss can be dictated by the amount of money in your account. Setting the right to take profits and stop losses helps you to lower the risk and be consistent in your trade outcomes.
Trade markets having low correlation
A good trader will set a limit to the amount he or she is willing to risk on each trade position. Well, this is a good practice as it in line with spread betting. However, when the holdings in the account of the trader move in the same way, then the trader will not have any protection. Most currency pairs come with high correlations of about 80% to 90%. In such a correlation, trading in a particular direction means the holdings are likely to move as well. Therefore, correlated trading of currencies will only concentrate on the risk rather than lower and diversify the risk. Trading pairs with low correlation will also help in reducing the trading fees.
Steer clear of trading around big economic reports
In the FX market, it’s hard for a day to go by without any financial announcement. Well, these announcements are essential, but the big ones are to approach with a lot of caution. Surprise statements and reports such as change in the interest rate has significant effects on the FX market and can take the market into a tailspin. Try not to go with the wind and stick to your economic calendar as these announcements can come with risks that you never expected.
FX trading can be unpredictable. However, by knowing the risks in the FX market, you can lower and diversify the risks. With these tips, you can make FX trading profitable as well as be consistent with your outcomes.