We noticed that many people is now fully aware of the importance of investing and among all the investment Forex Trading has seen increase in trades as it is the most easiest place to learn about investment with a very minimal investment from our end.
Many people from all walks of life has taken the effort to learn the trades and invested some of their hard earned money in this financial market and we at Monest would like give you guys a head-up on how to manage the risk of loses during this unpredictable moment.
Below are few areas that you should be focusing if you are trading a live account:-
Managing Stop Loss
Since early March, daily moves between 100 to 300 pips on EUR/USD have been the norm. A stark contrast to market conditions a few months ago.
The protective stop-loss order helps prevent excessive losses and margin calls. Even under normal market conditions It is an essential risk-management tool. Given notable increase in volatility, stop-loss placement is a concern for many traders. Widening stop distance is, of course, an option to help overcome this, though do bear in mind this also increases risk If position size is not accounted for.
The way traders reduce risk to break-even may also require modification. In times of market volatility, positions need ‘more room to breathe’ – price movement can connect with the entry price a number of times before settling on a direction.
Protecting gains when they occur is also just as important. Prudent traders will respect take profit targets, or at least use a trailing stop to prevent a winning position turning into a loser.
Most traders employ leverage to maximize returns. Higher leverage often leads to bigger profits, particularly in Forex trading. However, it is a two-sided coin, equally increasing gains and losses.
Adjusting leverage to account for wider movement of market price is, therefore, certainly something traders should be considering.
Covid-19 is uncharted waters for all. Whether it be quarterly results from a publicly-traded company or unemployment figures, traders are essentially trekking unknown terrain. News reports concerning Covid-19 grace our screens on an hour-to-hour basis, so it is essential to stay plugged in to the latest news and track open positions.
Still, it’s impossible to monitor positions 24/7 or over the weekend when access is limited. That’s why some traders are currently choosing to liquidate positions before the close of trade each day.
In parallel with leverage, traders will also consider paring back and trading smaller risk. If you already have strict position-sizing rules in place, this may not apply.
If you are currently risking 3-5% of your account equity each trade, you may want to abide by 1-2%. Though, it really all depends on what risk you are personally comfortable with. Risking 5% per trade, for example, means if you lose 20 consecutive trades, unlikely but still a possibility, your account could be wiped out. This is certainly something to take into account in these unprecedented times.
Remember it is important to protect your equity, especially during this unprecedented times.
By Suren Subramaniam | 9 September 2020