5 Strategies To Manage Forex Trading Risks For Beginners In The UK

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While glossy traders flaunting their wealth on social media is tied to the lure of making big returns from small investments, it’s no surprise that forex trading is booming in the UK.

One study suggests that there was a near 25% increase in the number of people trading forex on these shores between May 2020 and the same point 12 months on.

In a market driven by volatility, trading foreign currency certainly can offer big returns for savvy investors.

However, that volatility also comes with significant risks. If you’re just beginning your trading journey, it is especially important to factor in some solid risk-management strategies in order to boost your chances of long-term success.

Here we will look at what some of those strategies look like.

The risks of trading forex

First of all, understanding what risks you face in trading forex can help you to mitigate them.

The biggest risk of all is, of course, losing your cash. You have to invest in order to make returns but if those investments don’t work out, you don’t get a do-over.

Each investment you make will come with risks. Clearly identifying them and putting plans in place to work around them is one of the cornerstones of good trading.

The benefits of trading forex

Put the work in, mitigate risks properly and pick the right investments and you could increase your income or even find a new career through investing in forex.

It also helps you learn new skills and could become a hobby that can scale up and down to suit you and your lifestyle.

Trading can also give you a deeper understanding of world events, as monitoring them will help guide some of the decisions you make about which trades to execute.

Five strategies to manage risk for beginners

Eliminating risk in forex trading is nigh-on impossible, but there are some things that you can do to work within the boundaries of your appetite to risk – essentially how much money you can afford to lose as you go in search of success.

  • Diversify, diversify, diversify: Putting all your hopes into a small number of trades is a high-risk strategy and can backfire fast. Moving your money around and finding different ways to hit on success not only protects your investments but can also help you learn more strategies to implement in the future.
  • Plan ahead with stop/loss: This protects your investment by automatically trading a currency away once it reaches a price that would incur you a loss. While this automation can be useful, it may also be triggered by short-term factors so keeping an eye on your profile remains key.
  • Pick the right instruments: Speak to experienced traders and other experts before deciding exactly where you’re going to put your money. For example, spread betting is a common entry point for new investors, with tax-free profits and no ownership of securities among the benefits.
  • Utilise a demo account: Most reputable trading platforms will allow you to practice trades and strategies on a demo account where you use fake funds to execute trades in real-market settings. Of course, you won’t benefit financially if a demo trade is a success, but it gives you the confidence to repeat this for real. Similarly, something that goes awry in a demo situation can be avoided when it comes to your future investments.
  • Keep a detailed trading diary: Whether it’s for your demo trades or real-money ones, keeping a log of everything that you do can show you patterns of success and failure that dictate how you operate in the future. Learning from mistakes and building on successes will soon streamline your processes.
PM Today Contributor
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