How to Skip the Risks When You’re FX Trading

If there’s one thing I’ve learned over the years, it’s that Forex trading is only as risky as you want it to be.
After all you have complete control. You’re in control of what size lots you trade (including the micro-lots I mentioned yesterday)….what account balance you decide to start with…and how many lots you trade in that account.
ALL of these are factors determine how much risk you use when you’re trading in the Forex market.

Don’t Bother Using “Corvette Type” Leverage If You’re Driving a Neon

I often liken risk in the currency market to cars.
You see, I could drive a Corvette that can speed up to 200 mph or I could drive a Dodge Neon that taps out at 100 mph. But just because the Corvette can drive twice as fast doesn’t mean that I HAVE to drive at 200 mph every time I get behind the wheel of my Corvette.
In fact, I’ll probably get pulled over and get a speeding ticket eventually if I try it.
Well, it’s the very same way with your trading account. Just because you have the ability to trade standard lots that trade 100,000 units of currency at a time (and use 100 times leverage), doesn’t mean you should…especially if you’re trading with a smaller account.
The trick is to match the level of risk to your account size. For example, if you’re trading a $50,000 account, you’re officially driving a corvette-type account. This means you can handle the advanced leverage if you’re up for it. Of course, you can also trade mini-lots and minimize your risk if that’s your ultimate goal.
On the other hand, if you have a smaller account (say $1,000 to $10,000), I recommend using micro or mini-lots to cut down on your risk.

Learn from Their Mistakes!

Of course, not everyone understands this concept.
I’ve seen traders who only trade 1 or 2 mini lots in a $100,000 account. I’ve seen others who for some dumb reason wanted to trade the same amount of lots in a $300 account.
Even though these two accounts are trading the same amount, the trader with the $300 account is likely to be out of money in a trade or two. That means they’re trading WAY too much risk in relation to their account size.
Meanwhile, the trader with the $100,000 account has nothing to worry about really. They’re using a very low level of risk in relation to their account size.
This is exactly why some people say currencies are “too risky.” It’s because they do NOT understand how to minimize the risks. It’s not true…it’s actually fairly simple. Just use some common sense. If you have a larger account you can afford to trade more lots, and use higher leverage. If you have a smaller account, trade smaller lots and use smaller lot sizes to cut down your risk.
So don’t believe this huge MYTH that Forex is “too risky.” In fact, it’s the Forex traders who determines MOST of the risk themselves.