Trading is the exchange of goods or services between two or more parties. So if you need gasoline fo𓄧r your car, then you would trade your dollars for gasoline. In the old days, and still, in some societies, trading was done by barter, where one commodity was swapped for another.

A trade may have gone like this: Person A will fix Person B's broken window in exchange for a basket of apples from Person B's tree. This is a practical, easy-to-manage, day-to-day example of making a trade, with relatively easy management of risk.

In order to lessen the risk, Person A might ask Person B to show their apples, to make sure they are good to eat, before fixing the window. 🥃This is how trading has been for millennia: a practical, thoughtful human process.

This Is Now

Now enter the Internet and all of a sudden risk can become completely out of control, in part due to the speed at which a transaction can take🥀 place.

In fact, the spe🦋ed of the transaction, the instant gratification, and the adrenaline rush of making a profit in less than 60 seconds can often trigger a gambling instinct, to which many traders may ꧒succumb.

Hence, they might turn to online trading as a forꦺm of gambling rather than approaching trading aꦏs a professional business that requires proper speculative habits.

Speculating as a trader is not gambling. The difference between gambling and speculating is 澳洲幸运5官方开奖结果体彩网:risk management. In other𝔍 words, with speculating, you have some kind of control over your risk, whereas with gambling you don't.

Even a card game such as poker can be played with either the mindset of a gambler or with the mindset of a 澳洲幸运5官方开奖结果体彩网:speculator, usually with totally different outcomes.

Betting Strategies

There are three basic ways to make a bet: 澳洲幸运5官方开奖结果体彩网:Martingale, 澳洲幸运5官方开奖结果体彩网:anti-Martingale, or speculative. "澳洲幸运5官方开奖结果体彩网:Speculation" comes from the Latin word speculare, meaning to spy out or look forward.

In a Martingale strategy, you would double-up your bet each time you lose and hope that eventually the losing strea🦂k will end and you will make a favorable bet, thereby recovering all your losses and even making a small profit.

Using an anti-Martingale strategy, you would halve your bets each time you lost, but you would double your bets each time you won. This theory assumes that you can capitalize on a winning streak and prof🍌it accordingly.

Clearly, for online traders, this is the better of the two strategies to adopt. It is always less risky to take your losses quickly and add or increase your trade🐎 size when you are winning. However, no trade should be taken without first stacking the odds in your favor, and if this is not clearly possible then no trade should be taken at all.

Know the Odds

So, the first rule in risk management is to calculate the odds of your trade being successful. To do that, you need to grasp both fundamental and 澳洲幸运5官方开奖结果体彩网:technical analysis. You will need to understand the dyn♕amics of the mark🐽et in which you are trading and also know where the likely psychological price trigger points are, which a price chart can help you decide.

Once a decision is made to take the tr༺ade then the next most important factor iꦿs in how you control or manage the risk. Remember, if you can measure the risk, you can, for the most part, manage it.

In stacking the odds♎ in your favor, it is important to draw a line in the sand, which will be your cut-out point if the market trades to that level. The difference between this cut-out point and where you enter the market is yo𒁏ur risk.

Psychologically, you must accept this risk upfront before you even take the trade. If you can accept the potential loss, and you are OK with it, then you can consider the trade further. If the loss is too much for you to bear, the༒n you must not take the trade, or else you will be severely stressed and unable to be objective as your trade proceeds.

Since risk is the opposite side of the coin to reward, you should draw a second line in the sand, which is where, if the market trades to that point, you will move your original 🥂cut-out line to secure your position. This is known as sliding your stops.

This second line is the price at which you break even if the market cuts you out at that point. Once you are protected by a break-even stop, your risk has virtually been reduced to zero, as long as the market is very liquid and you know your trade will be executed at that price. Make sure you understand the difference between 澳洲幸运5官方开奖结果体彩网:stop orders, 澳洲幸运5官方开奖结果体彩网:limit orders, and 澳洲幸运5官方开奖结果体彩网:market orders.

Liquidity

The next risk factor to study is liquidity. Liquidity means that there are a sufficient number of buyers and sellers at current prices to easily and efficiently take your trade. In the case of the forex ma♓rkets, liquidity, at least in the major currencies, is never a🐬 problem.

This is known as market liquidity, and in the 澳洲幸运5官方开奖结果体彩网:forex market, it accounts for some $7.5 trillion per day in trading volume as of April 2022 (latest information).

However, this liquidity is not necessarily available to all brokers and is not the same in all currency pairs. It is really the broker liquidity that will affect you as a trader. Unless you trade directly with a large forex dealing bank, you most likely 🐎will need to rely on an online broker to hold your account and execute your trades accordingly.

Questions relating to broker risk are beyond the🔥 scope of this article, but large, well-known, and well-capitalized brokers should be fine for most retail online traders, at least in terms of having sufficient liquidity ꦆto effectively execute your trade.

Risk Per Trade

Another aspect of risk is determined by how much 澳洲幸运5官方开奖结果体彩网:trading capital you have availab⛦le. Risk per trade should always be a small perc⭕entage of your total capital. A good starting percentage could be 2% of your available trading capital.

So, for example, if you have $5,000 in your account, the maximum loss allowable should be no more than 2%. With these parameters, your maximum loss would be $100 per trade. A 2% loss per trade would mean you can be wrong 50 times i🔥n a row before you wipe out your account. This is an unlikely scenario if you have a proper system for stacking the odds in your favor.

So, how do we actually measure the risk?

The way to mea𓂃sure risk per trade is by using your price chart. This is best demonstrated by looking at a chart as follows:

We have already determined that our first line in the sand (澳洲幸运5官方开奖结果体彩网:stop loss) should be drawn where we would ജcut out of the position if the market traded to this level. The line is set at 1.3534. To give the market a little room, you can set the stop loss to ♏1.3530.

A good place to enter the position would be at 1.3580, which, in this example, is just above the high of the hourly close after an attempt to form a 澳洲幸运5官方开奖结果体彩网:triple bottom failed. The difference between this 澳洲幸运5官方开奖结果体彩网:entry point and the 澳洲幸运5官方开奖结果体彩网:exit point is therefore 50 pips. If you are trading with $5,000 in your account, you would limit your loss to 2% of your trading capital,🀅 🐼which is $100.

Let's assume you are trading 澳洲幸运5官方开奖结果体彩网:mini lots. If one pip in a mini lot is equal to approximately $1 and your risk is 50 pips then, for each lot you trade, you are risking $50. You could trade one or two mini lots and keep your risk between $50 and $100. You should not trade more than three mini lots in this example if you do not wish to violate your 2% rule.

Leverage

The next big risk magnifier is leverage. Leverage is the use of the bank's or broker's money rather than the strict use of your own. The spot forex market is a very leveraged market, in that you could put down a deposit of just $1,000 to actually trade💜 $100,000.

This is a 100:1 leverage factor. A one pip loss in a 100:1 leveraged situation is equal to $10. So if yo♔u had 10 mini lots in the trade, and you lost 50 pips, your loss would be $500, not $50.

However, one of the big benefits of trading the spot forex markets is the availability of high leverage. This high leverage is available 𒁃because the market is so liquid that it is easy to cut out of a position very quickly and, therefore, easier compared with most other markets to manage leveraged positions.

Leverage of course cuts two ways. If you are leveraged and you make a profit, your returns are m﷽agnified very quickly but, in the converse, losses will erode your account just as quickly too.

But of all the risks inherent in a trade, the hardest risk to manage, and by far the most common risk blamed fꦺor ✃trader loss, is the bad habit patterns of the trader themself.

All traders have to take responsibility for their own decisions. In trading, losses are part of the norm, so a trader must learn to accept losses as part of the process. Losses are not failures. However, not taking a loss quick♊ly is a failure of proper trade management.

Usually, a trader, when their position moves into a loss, will second guess t💮heir system and wait for the loss to turn around and for the position to become profitable. This is fine for those occasions when the market does turn around, but it can be a disaster when the loss gets worse.

The solution to trader risk is to work on your own habits and to be honest enough to acknowledge the times when your ego gets in the way of making the right decisions or when you simply can't manage the instinctive pull of a bad habit.

The best way to objectify your trading is by keeping a journal of each trade, noting the reasons for ent💝ry and exit, and keeping a score of how effective your system is. In other words, how confident are you that your system provides a reliable method in stacking the odds in your favor and thus provides you with more profitable trade opportunities than potential losses?

The Bottom Line

Risk is inherent in every trade you take, but as long as you can measure the risk you can manage it. Just don't overlook the fact that risk can be magnified by using too much leverage with respect to your trading capital as well as being magnified by a lack of liquidity in the market. With a disciplined approach and good trading habits, taking on some risk is the only way to generate good rewards.