If you talk to any experienced Forex trader, the trader is going to have plenty of stories about major losses – even when all the tips and trends said that the trade was going to bring a major profit. Before you get too caught up in all of those Forex review websites (even the ones with great reviews and success histories), it is important to realize that there is ALWAYS risk with Forex trading! Don’t ever put too much of your investment into a single trade!
In order to successfully trade on Forex, you must have a risk management plan. Under your plan, you should set an amount which you will trade. Of course, the amount which is considered reasonable varies per trader. Some traders will only risk .5% of their account whereas others will risk half. Let’s take an example where a trader has $5000 in the Forex trading account. If the trader decides to risk $2500 on a single trade and it goes well, then there can be substantial profits. But, if the trade goes bad, then the trader will be left with just $2500 in the account. If that same trader risks half the account again and fails, then there will only be $1250 in the account. With high-risk Forex trading, you are severely limiting the number of bad trades you can have without wiping out your account. At the same time, you are increasing the amount of successful trades you must have just to recoup your loss.
Most experts recommend risking no more than 5% of your Forex trading account. With this amount, you can have multiple losses without depleting your account. At the same time, a single good trade and recoup a substantial amount of any losses or represent significant profits.
The only time that you should be risking large percentages of your Forex account is if you have personally been following a trade for a long time and are very sure that it will reap you benefits. Do not base your assurances on the tips found at Forex websites or any so-called insider advice. The decision to make a large risk trade should be based on your own personal knowledge and experience only!
How Much Should You Risk with Forex Trading?It is a good idea to practice Forex trading with virtual “fake” money accounts first. But keep in mind that these virtual accounts are not always indicative of real Forex trading because of “slippage.” Slippage refers to the price difference which a broker gives you, blaming the worse price on the swiftly-moving market. You could easily get burned for a few pips to up to 20 pips due to slippage! Demo accounts also respond to spikes (sudden changes in currency prices) better than real Forex trading accounts. If you did well on your demo Forex account, make sure that you using extra caution when you start out with real Forex trading just to make sure you are in control of the slippage and spikes.