| Trading in the foreign exchange (FOREX) market | | | | offer online platforms which allow the trader to |
| offers both tremendous profits and substantial risks, | | | | pre-select the amount of leverage sought. Depending |
| as does many business opportunities. Have you ever | | | | on the broker, the leverage allowed may go as high |
| wondered how you could trade the FOREX while | | | | 400:1. The average maximum leverage allowed by |
| controlling and/or reducing the risks involved? Has the | | | | most online brokers is closer to 100:1. |
| fear of losing in a big way kept you from entering | | | | Consider utilizing the built-in safety features such as |
| this fast-growing market? This article explains several | | | | the stop loss, trailing stop and limit to help control the |
| steps you as a trader can take to better protect | | | | risks. A stop loss is a feature offered by virtually all |
| your investment in this dynamic marketplace. | | | | online trading platforms. It allows you to |
| For starters, understand that your long-term survival | | | | predetermine at which price level your trade will |
| and ultimate success necessarily depend on a | | | | automatically closed if the market moves unfavorably |
| cautious approach to the market from the start. | | | | against you. News traders and day traders will |
| Among other things, this means that the percentage | | | | typically utilize a smaller stop loss as opposed to the |
| of margin put at risk in each trade must be | | | | wider stop favored by long-term traders whose |
| reasonable. Within reason, limit the amount of money | | | | positions may be open for several days or longer. A |
| put at risk. Naturally, what is reasonable to one | | | | trailing stop will allow the stop loss to be moved in |
| person may have a different meaning to the next | | | | the direction of your profit and has the net effect of |
| person. | | | | incrementally bagging your profits as the price |
| Regardless of the amount of available margin in the | | | | movement continues to move favorably. |
| account of the investor, the percentage traded must | | | | The limit provides a capping of the profits much in |
| not be so great as to significantly deplete the trading | | | | the same way that the stop loss minimizes the |
| resources if a trade turns unfavorable. Many | | | | losses. Similarly, it automatically shuts the trade down |
| successful traders refuse to exceed one percent of | | | | once the predetermine threshold is reached by the |
| the tradable margin when executing their orders, | | | | moving price. It is quite advantageous in |
| while others may go high as ten percent. Putting an | | | | circumstances where the market experiences a |
| amount higher than ten percent at risk would | | | | major whipsaw or in the event of a disconnection |
| probably qualify as aggressive trading. | | | | from the broker's server or the trader's internet |
| Because the amount of leverage applied to the trade | | | | service provider while the trade order is open. |
| can have a profound impact on the outcome, it is | | | | The occasional loss aside, trading does not have to |
| better to trade at a level of leverage that matches | | | | be a traumatic experience. As the saying goes, |
| your trading experience, proficiency and style. | | | | nothing ventured, nothing gained. Still, your trades |
| Beginning traders may not fully understand that | | | | must be properly planned, executed and managed. |
| leverage is a double-edged sword, capable of | | | | Utilizing the safety tools designed for the protection |
| enhancing profits as well as losses. A conservative | | | | of your trading positions is a smart way to ensure |
| application of leverage should certainly be the | | | | your longevity in a business where so many fall by |
| practice of every new trader. | | | | the wayside as a result of failing to understand and |
| As the proficiency and confidence levels grow, a | | | | properly manage the risks. |
| higher level of leverage may be utilized. Many brokers | | | | Sandy Robinson, J.D. |