Everyone wants to invest a big amount of money in the Forex market. The more money a trader can investment, the more profit he can secure at trading. But this is not a big problem since the Australian traders can easily use the leveraged account. Using leverage and executing random trades to earn more money is a very sophisticated process. A small mistake can cost your trading capital. You might even lose a million-dollar trading account due to one poor risk management policy.
Leverage can make your dream come true, but it can be your biggest enemy while managing risk exposure. Today, we are going to discuss 5 cardinal ways to safeguard the trading capital. Follow these rules, if you want to stay safe at trading.
Invest your idle money
You should never invest any money that you might require within the next six months. Trading should be done with the idle money or else it will be tough to control the greed. Let’s say, you have borrowed $100K from your friends and family on to fund the trading account. You will be under great pressure. Such mental stress forces the traders to execute low-quality trades which in turns result in a big loss. Unless you have the idle money to trade, you should never consider trading the real market.
Know your risk tolerance
You should know about risk tolerance since it is one of the most important elements to curate the risk management plan. For instance, those who feel comfortable to lose 2% in each trade, might not feel comfortable to trade with 5% risk. The risk tolerance level greatly depends on the trader’s mentality. Once you know your risk tolerance level, you can easily scale the lot size and keep risk low. But stop being a naïve trader by executing trades in the Forex trading account by taking more than 3% risk. The safety of your trading capital should be on the priority list. It’s better to earn less rather than blowing up the account in a few wrong trades.
Improve your recovery factor
You must work on the risk to reward ratio to improve the recovery factor. If you trade this market with a 1:3+ risk to reward ratio, it won’t take too much time to develop your skills as a currency trader. Focus on the long-term goals and try to increase the risk to reward ratio by analyzing the bigger time frame. Once you get good at trading, it won’t take much time to find trade setups with a 1:6+ reward ratio. And if you can do this, one good trade is enough to recover 6 losing trades. So, think about the consequences before you take things to the next level. Focus on the long-term goals and try to improve your trading edge by learning from your mistakes.
Control your emotions
To safeguard your trading capital, you must learn to control the emotions. Control emotions is a very tough task. The naïve traders may think it is the easiest task in the world. But once they start to lose a few trades in the real market, they will understand how hard it is to stay in the sideline. There is no reason to push yourself to the edge even though you can make big profits by taking aggressive steps. Forget the fact, trading is more like pushing yourself to the limit. Think about the long-term goals and keep yourself calm regardless of the trading results.
Learn to use the leverage
Leveraged trading is one of the most common reasons for blowing up the trading account. If you want to stay safe you should never use more than 1:10 leverage. By doing so, you lose the power to execute big lot trades after losing a series of trades. Focus on the conservative method and lower down your account leverage to protect your capital.