Many novice traders are so afraid of the risk of loss that they try to avoid it as much as possible because they don’t understand basic forex risk management. Obviously this is not a good start to start a trading business, because excessive fear is even riskier.

For example, you see the potential profit on the EURUSD currency pair. However, because the movements are so volatile, you are afraid to open positions. Finally, your funds just settle in the account, not decreasing and not growing. What for?

Another example, you place a Stop Loss only 10 pips from the entry-level for fear of losing too much. What will happen? Instead of profit, your position is prone to being closed automatically in a loss. Compare with placing a Stop Loss 30 pips from the entry-level.

If you dare to place this slightly further distance, it means that you allow the price to reverse in the direction you want, so that the possibility of the position being automatically closed by Stop Loss is also smaller.

Installing the smallest possible risk limit does not mean you are free from the risk of loss. The important thing is to master the basic forex risk management.

Determine a risk limit that is not too close to the entry-level, but also not too far away so as not to burden you. For novice traders, the risk limit recommended by the best forex broker is 1% -5% of the capital.

How to Master Basic Forex Risk Management

Even though novice traders and pro traders are both exposed to the various risks above, the difference is that pro traders understand how to manage risk.

Thus, the risk received is not too big and can be overcome. Here are some basic forex risk management or risk settings that you can apply when trading:

1. Determine risk tolerance

Ask this question when making a trading plan and before opening a position on the market: "How much loss can I accept?"

If you don't know how much loss you can accept, you will be very susceptible to losing a large amount. Normally, a trader sets a loss limit per transaction in the range of 1% -5% of his / her funds.

For example, if you have $ 1,000 in funds, then your loss limit is between $ 10- $ 50 only for one transaction. This amount is relatively small and you can "pay off" with a profit opportunity in subsequent transactions.

2. Use stop loss and take profit in every transaction as the basic forex risk management

After knowing your risk tolerance, you can take advantage of the stop loss feature to set a loss limit level. With a stop loss, you don't need to keep watching the chart without pausing just in case, because your position will be closed automatically if the price hits the stop loss level.

That way, you avoid much bigger losses if the price changes direction. Unlike the stop loss, take profit sets the profit limit level, but it works the same way.

When the price hits the take profit level, your position will be closed automatically so that your profit is realized immediately. 

3. Avoid overtrading

Overtrading here can be in the form of transactions with large lots, where the number of lots is not proportional to the resistance of the capital.

If the price does not match the opened position, the trader's account will be auto-cut and suffer a large amount of loss. Therefore, also consider the number of lots when opening a position.

Every business must have risks that cannot be avoided, therefore you must be clever in managing them. Join the Didimax forex broker so you can learn forex tips for free.

Don't be afraid to face losses, because the more you are afraid, the greater the risk. If you want to become a professional trader, then you must master basic forex risk management.