How to make profits in Forex

by Jaxton Ibrahim

The Forex market is a market where you can place big bets thanks to taking advantage of 24-hour trading system that provide constant liquidity. Leverage represents one of the ways to “play for significant stakes”. With a relatively small initial investment, you can control a fairly large position in the Forex markets; 100: 1 leverage is quite common, but some brokerages offer higher leverage ratios. Take a look at the Trade Horizon Review to see what they have in store.

 Also, market liquidity in major currencies ensures that a position can be taken or liquidated at cyber speed. This execution speed makes it critical that investors also know when to exit their trade. Besides, make sure to measure the potential risk of any trade and set stops that will get you out of the trade quickly while leaving you in a comfortable position to complete the next trade. While taking large leveraged positions offers the opportunity to generate large short-term profits, it also means exposure to more risk.

What is the sufficient level of risk?

So how should a trader go about playing for high stakes? First, all traders should assess their own appetite for risk. Traders have to play the markets with “risk money”, which means they would not be helpless if they lost everything. Second, each trader needs to define – in monetary terms – how much they are prepared to lose on a single trade. So, if a trader has $ 10,000 available for trading, he must determine what percentage of that amount he is willing to risk on a trade. Usually, this percentage is around 2-3%. Depending on your resources and your risk appetite, you can increase the percentage up to 10%, but we wouldn’t recommend more than that.

Thus, playing for significant stakes then takes on the meaning of managed speculation rather than wild gambling. If your potential trade’s risk/reward ratio is low enough, you can increase your stake. This leads to the question, “How much is my risk to be rewarded on a particular trade?” Answering this question correctly requires understanding your methodology or your system’s “expectation”. In essence, the expectation is the measure of the reliability of your system and, therefore, the level of confidence you will have in placing your trades.

Adjustage of stops

To determine how much to stake in your trade and to get your money’s worth, you should always calculate how many pips you will lose if the market goes against you if your stop is hit. The use of stops in Forex markets is generally more critical than for investments in stocks, as small changes in currency relationships can quickly lead to massive losses.

Let’s say you have decided your entry point for trade and also calculated where you are going to place your stop. Suppose this stop is 20 pips from your point of entry. Let’s also assume that you have $ 10,000 available in your trading account. If the value of a pip is $ 10, assuming you are trading a standard lot, then 20 pips equal $ 200. This equates to a 2% risk of your funds. If you are prepared to lose up to 4% in a trade, you can double your position and trade two standard lots. A loss in this trade would, of course, be $ 400, or 4% of your available funds.

The bottom line

You should always bet enough in any trade to take advantage of the largest position size that your personal risk profile allows while ensuring that you can always capitalize and profit on favourable events. It means taking a risk that you can resist but go to the maximum whenever your trading philosophy, risk profile and resources adjust to such a move.

An experienced trader should track high probability trades, be patient and disciplined while they wait for them to take place, and then bet the maximum amount available within the limits of their personal risk profile.

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