3. Control Risk in Forex by Using Low
Controlling risk by using low leverage
goes together with only risking a maximum of 2% of your margin on a
In business, a company is typically considered to be OVER-leveraged when
using 1.3x leverage (not 13x, but 1.3x – not even 2x), yet forex
retail traders have access to at least 50x leverage!
You should never use anything close to
All consistently profitable forex
traders use low-leverage, typically less than 10x leverage. Many
profitable traders even refuse to use more than 5x leverage.
Because leverage is a double-edge sword
that both accelerates your gains and escalates your losses. As
mentioned, you may get excited by a $500 gain from a $2,000 account,
but can you handle a -$500 loss?
Potentially losing -25% of your account
value on ONE trade is not sustainable long-term. It is guaranteed you
will blow up your account eventually using that level of leverage.
your loss potential using 50x leverage:
pips reduces your account by 5%
pips reduces your account by 10%
pips reduces your account by 25%
pips reduces your account by 50%
happens if the market JUMPS -100 pips against you?
is a real risk in the forex market, where your stop-loss will be
triggered several pips further than what you wanted. Sometimes the
forex market makes large jumps in an instant. If you had put your
stop-loss at -50 pips, but the market jumps -100 pips against you,
then you have lost HALF of your account in an instant using 50x
if you had $100,000 and lost -$50,000 on one bad trade?
4. Manage Money and Control Risk in
Forex by Avoiding Anxiety
Pay attention to
your anxiety. If you have anxiety, then you are trading wrong.
Anxiety is a sign
that you are risking too much. No one should have anxiety risking
only 1-2% of their margin on a trade. If you are following the 2%
rule, then you should only be risking $40 with a $2,000 account.
$40 probably won't cause most people anxiety. However, if you are
risking 10% and the potential of losing -$200 causes you anxiety then
you are risking too much.
Anxiety not only
alerts you to the fact that you are taking on too much risk, but it
also will cause people to not follow their strategy. They panic and
make poor decisions that go against their strategy because they are
risking too much money and have anxiety.
talks about how emotions get in the way of trading, and that controlling
your emotions is important for being profitable, but in reality the
issue is not emotions. The issue is that you are taking on too much
risk, which is why you are emotional in the first place.
consistently profitable traders do not suffer from anxiety from
trading, because they control risk.
5. Manage Money in
Forex by Keeping a Trading Journal
Whether it be pen
and paper, or an Excel spreadsheet, everyone should record the
details of their trades, including: Date Enter/Exit, Time Enter/Exit,
Forex Pair, Price Enter/Exit, Loss/Gain, and take notes for why you
entered or exited the trade.
historical trades is absolutely essential to noticing (and fixing)
mistakes you keep making, as well as examining your overall
performance. If you trade without keeping track of your trades,
especially for the first few years, then you are bound to keep
repeating the same mistakes over and over again.
In one study, over
almost 85% of consistently profitable forex traders kept a trading