There are many things forex traders can do to limit their risk, or at least decrease it... but what must be remembered at all times is that risk in forex trading, or any other trading, cannot be removed, and must be accepted and respected.
Before I jump into this blog post I want to touch base on the mindset for trading, in reality, it is the epitome of success in forex and every other type of trading so it is important that I go over it since mastering the mindset part of trading will help you to control your risks and remove margin calls and stop-outs. - The stop losses cannot be removed and they are mandatory in trading.
My best advice to mastering your mindset in trading is books, specifically personal development books like "think and grow rich", "the secret" and the hundreds upon hundreds of others. (If you want recommendations, just let me know in the chatbox and I will send you my list of favorite books)
Now coming back to the point of this blog post.
Let's start with the main point, which is MARGIN. Trading on margin is a way for traders with limited capital to make significant profits (or losses).
The problem is many traders fail to understand the concept of margin so I think it's essential that I explain what is a margin call, I sure know I use to get them all the time because I wanted to become a millionaire overnight... silly me, but reflecting on all those errors and completely understanding that margin calls exist and fixing my mindset totally removed this disaster from my trading.
WHAT IS A MARGIN CALL
Understanding what margin call is and how it works is the first step in knowing how to avoid one... and increase the safety of your forex trading account.
The problem is that new traders want to focus on other details of trading such as indicators, EA's/Robots or money-making chart patterns, but very little thought, if any, is given to the important elements such as margin requirements for specific assets, pip value, stop out percentages of the broker they use, SWAPS, etc.
In reality not knowing the above is like opening a restaurant but not knowing your running costs, expenses for licenses etc... it would be stupid right? Yes so many traders have no clue about these basic costs everyone should know.
If you get a margin call out of the blue and you're surprised about it, it simply means you have no clue what causes a margin call and you're opening trades without considering margin requirements. - If this is you, you are doomed to fail as a trader. Guaranteed 100%.
Now, what causes A margin call? The answer is pretty simple, when your account’s Margin Level has fallen below the required minimum level. At this point, your broker will notify you and demand that you deposit more money in your account to meet the minimum margin requirements, and if the price continues going against you... oh boy, then you have an even bigger problem and that problem is called a STOP OUT!
FYI. this process is automated so your broker will notify you by email and in-app notification (MT4, cTrader etc..)
Before I move to the next point, know the margin requirement of an asset before you place a trade, also know the pip value so you know how many pips you can afford to lose... if you ever trade with me you will know that the first thing we look for when we find a trade is our EXIT, by doing this we get to work out our position size and control our risk and exposure.
In trading we need to control what we can, the market and the outcome of our trades we cannot control, but we can control how much you trade, how big we go, when we enter, when we exit and what we do while we are in a trade... including what we think about.
STOP LOSSES ARE YOUR BEST EMPLOYEES, TREAT THEM WELL.
When you click on this post I am sure you expected me to talk about stop losses, after all, they are the direct way to control our losses.
There is a problem with SL's tough... the only times SL's don't work is if you leave trades over the weekend and price gaps above your exit price.
ALWAYS USE POSITION SIZING, CONTROL WHAT YOU CAN.
The best thing I ever did in trading was start using structure position sizing, very soon I will go over that in detail... but as I explained above, we need to control what we can and that starts with our position sizing as it's the direct correlation to our profit and loss factors... pips and pils (Points In Profit / Points In Loss).
I don't want to go over too much.... I'm going to leave you with a video about probably the best risk management techniques I found so far... keeping in mind you can join my community for as little as $9.00 a month! Head over to www.PrimedTraders.com
You need to watch this video, but be focused while you watch it!