LONDON, January 12, 2012 /PRNewswire/ --
Risk management is crucial to the long term success of a Forex trader: it can be the difference between a good strategy and a bad one. In this article Vantage FX UK looks at three techniques to manage your risk management in Forex trading. Read on to learn more about stop loss orders, risk/reward ratios and profit retention.
Stop Loss Orders
There are a number of different stop loss orders to suit each trader's requirements, but in essence a stop loss is designed to close a trade when it hits a trigger price set by the trader. The setting of a stop loss order is extremely important in Forex trading as volatility and price fluctuations can be significant on a daily basis. You can learn more about stop losses at http://www.vantagefx.co.uk/education/managing-risk/
Whilst it is important to pay attention to focus on potential gains, potential losses play an equally important role in your bottom line. The exact amount of risk attached to a trade can be determined by using a risk-reward ratio to focus on both aspects of each trade.
This ratio is used to compare expected returns of an investment versus the amount of risk associated with those returns. Many traders view a 1:2 ratio as an acceptable risk/reward, but a better one is 1:3 or 1:4. Likewise, a 1:1 or 2:1 risk-reward ratio would be too risky to be a sensible trade.
Keep Your Profits
The most effective risk management tool is to regularly remove profits from your winning trades. Following such a strategy allows you to keep your gains and automatically reduces your risk. Remember, it is far easier to let your profits slip away than to hold onto them, but the latter is infinitely preferable to the former.
Practice risk management in Forex trading with a free Vantage FX UK demo account. Get started in minutes at:
Trading derivatives and Forex carries a high level of risk to your capital and you should only trade with money you can afford to lose. Forex trading may not be suitable for all investors, so please ensure that you fully understand the risks involved and seek independent advice if necessary.
About Vantage FX UK
Vantage FX UK is an internationally recognised currency trading broker based in the City of London, providing foreign exchange trading services to clients in the UK, the EU and the rest of the world.
What sets Vantage FX apart is its wide range of services and outstanding level of customer support. The company strives to provide an intuitive, interactive Forex experience by continually innovating and taking advantage of the latest trading technology, such as MetaTrader 4 and Expert Advisors.
Vantage FX also offers extensive educational resources to help give traders their edge, keep up with daily market commentary and try a Forex trading demo account. For further information on Forex trading at Vantage FX, visit http://www.vantagefx.co.uk/
SOURCE Vantage FX UK