The forex market is one of the most popular financial markets. Many traders started trading with the hope that they could navigate the forex market. Although some professional traders can already handle the volatility of the market, some are still overwhelmed.

Although it’s not the priority for many traders, risk management should be one of the things you should know about, especially as a beginner. In this article, we’ll give you some tips on how to manage your risks as a new forex trader.

1. Understand Forex Trading

Do you already know how to trade forex? If not, you should understand the basics before you start trading. Once you understand the forex market, it’s easier to make an informed decision. On the other hand, diving into forex trading without the proper knowledge can negatively affect your trading portfolio.

In addition, if you know what you’re dealing with, like how volatile the forex market is, it’s easier to create an effective risk management strategy.

2. Create a Trading Plan and Stick to it

Every forex trader should have a trading plan. Without it, you might make impulsive decisions and won’t be able to reach your goals. At the same time, sticking to your trading plan is also vital. Sure, you might’ve crafted an effective forex trading strategy, but there are times when the market goes the other way which can be confusing. In the end, after making a few changes in your strategy, you should still follow it.

3. Use Stop-Loss Orders

When it comes to risk management, one of the tools you shouldn’t forget is the stop-loss order. It’s when you can predetermine at which market value your trade will close.

For instance, if you can only afford to lose £5 in a particular trade, while the value of the underlying asset is £50, your stop-loss order should be at £45. Once the underlying asset hits the mark below £45, your trade will automatically close. This can prevent further losses, especially if you have limited funds in your trading account.

4. Limit Position Size

Another risk management tip that you should carefully consider is the position size. Are you aware of the 1% rule? It says the ideal amount of capital you should risk is at 1%. Once you identify the amount of capital you can risk, you can adjust the position size of your trade.

Meanwhile, one of new forex traders' biggest mistakes is opening a trade with a large position size to increase exposure. Whether you’re sure about your decision or not, this is not recommended.

5. Leverage with Caution

Leveraging can make or break your trading career. As you know, leverage doesn’t just magnify your gains, but also your losses. Although it allows you to trade with a small capital, you can still lose all your money.

Whether you already know how to trade forex or not, you should still leverage with caution. Start with the lowest leverage possible. As you gain experience and knowledge with leveraging, you can gradually increase, but still be mindful every time you trade.

6. Diversify Your Trades

You may have read the saying, “Don’t put all your eggs in one basket” a couple of times when looking at risk management tips. However, it can be a great reminder, so don’t forget about it. Besides, diversifying your trades can significantly improve your portfolio, no one wants to lose everything in a single trade. When you diversify your training portfolio, you still have a chance to win some of your trades if the others don’t turn out great.

For instance, if you’re used to trading major currencies, like USD/EUR and USD/GBP, maybe it’s time to try trading minor forex pairs, such as GBP/JPY and EUR/CAD, for a change in your portfolio.

7. Control Emotions

Do you still feel too emotional when you encounter losses? Negative emotions can cloud your way of thinking, which can lead to making impulsive decisions and revenge trading. Meanwhile, if you can control your emotions whenever you win a few times or lose a sure trade, you can focus on the more important things, like following your trading plan.

8. Stay Informed

Since the forex market often changes, you should be aware of the current conditions. Some of the factors affecting the movement of the forex market include economic indicators, company and global news, and central bank policies. If you’ve heard news or information related to these factors, you should be prepared to make your next move.

9. Keep Learning and Adapt to Changes

Aside from staying updated on the current news that affects the forex market, it’s also essential to continue to learn and adapt to certain changes. As the forex market moves forward, there can be significant changes that every trader and investor should be aware of.

Try reading articles, joining forums and online communities, and analysing professional traders’ strategies.

10. Utilise Demo Account

New forex traders should invest some time practising with a demo account. Before you lose all your capital, implement your trading strategies using fake money. Since most demo accounts offer real-time results, you can test whether the strategy you’ve crafted works or not.

Final Thoughts

Navigating the forex market can be overwhelming and challenging. It can take a while before you find your path to minimising losses. However, in the meantime, practising the tips provided about can help you manage your risks effectively.