How to Limit Your Forex Losses

Even the most novice or inexperienced investor should know that the idea of forex as a game of luck is incorrect. Fortune has its part to play, admittedly, but skill, time and effort have a far higher value when it comes to the determination of success. Although this means that a great deal of blood, sweat and tears must go into mastering the art of forex, this is very good news for investors, as it means that it’s entirely possible to tip the scales in our favour.

Here are three top tips to help you minimize your losses and turn your forex strategy into a roaring success…

Tip One: Choose a Suitable Broker

Perhaps the best way for any investor to safeguard their forex strategy is by selecting a suitable brokerage firm, like OANDA. The currency markets have no central trading area, and this means that the broker you choose will act as conduit, advisor, mentor and informant all rolled into one. It’s imperative, therefore, that you find one who fulfils your needs. For all but the most experienced, an advisory service will be the right way to go. Offering the opportunity to learn as you trade, your losses will still be limited by the experienced, guiding hand of an expert trader, helping to keep your account in the black.

Tip Two: Don’t Invest More than 10 Per Cent in a Single Trade

Our second tip should be self evident, yet a surprisingly large number of traders have a libertine approach to investing. It is, quite simply, this: limit your losses by capping the amount that you invest. Losses are only harmful to your portfolio if they push it into the red, and the best way to prevent this is by controlling the potential fallout from individual trades gone wrong. Setting a cap of 5 to 10 per cent on a single trade is the easiest way to do this, and even those with the highest risk thresholds should never risk more than 15 per cent of their account total in any one move.

Tip Three: Never Invest Reactively

Our third top tip is this: don’t invest reactively. Many traders, especially those lacking in experience, respond to large losses with emotion. This is not the way to do it. Rather than immediately closing your trade and trying to salvage your portfolio with new positions, take a deep breath and step back. Ask yourself these questions: If you leave your trade open, is there a possibility that your position will recover? If you had not experienced a loss, would you be making the same moves? If the answers are ‘yes’ and ‘no’ respectively, then stop, push your emotions to the side, and reassess your next move with a calm, clear head.

Follow these top tips today to limit your forex losses and turn your trading strategy into a success story.