Risk Management

Be careful but do not hesitate
Be careful, your money can evaporate just like that if you do not pay attention manajamen trading risk. Remember that forex trading investments are classified as high risk. This means that forex trading is considered high risk. One of the highest among other financial investment instruments.

Risk factors you should know before you start forex trading:

1. Have the possibility of losing funds 100%
2. Flow of funds very quickly (very liquid)
3. There is no trading method that can guarantee you definitely made 100%. There are many good trading method, but no one can guarantee 100% profit
4. Forex trading is not a "quick rich scheme" that can make you rich quick without working hard. There is no success without hard work. Hard work is an integral part of those who experience financial success in life. Including those who succeed through forex trading.

It takes hard work to learn the analysis and market behavior so that we can guess the direction of price movement accurately. So also needed extra mentality when trading results do not fit with what we expect.

Ask successful traders you know, whether they had experienced ups and downs in their trading. And the answer almost certainly is "yes." Success is only provided for those who want to try and learn continuously meperbaiki himself.

Now associated with risks that must be faced if we want to start investing in forex, it needs special tips to minimize, or even reverse our position that was minus a positive return and earn a profit. Here are some tips and management of risk you can take:

1. Cut Loss

Represents action to close your position opposite the market price movement. Cut loss used to limit the losses suffered so as to avoid even greater losses.

For example, say we're opening our position on Open Buy GBPUSD at 1.8000 price. Open a Buy position means that we expect prices to rise above 1.8000, so we get lucky. Our hope as the price moves up to 1.8100 so that we can obtain 100 points profit. But what power, turns out the price moves against what we expect. It turned out that the price goes down continually from 1.8000 to 1.7980 and still showed a tendency to fall.

Well than we experience further losses and ultimately experience a margin call, the better position to bear the loss even though we closed 20 points (1.8000 to 1.7980 = -20 points). This action is called the cut loss of close money-losing positions in order to prevent greater losses.

Other Case Details:
Mr. A opened a Buy GBP / USD at 1.8850 with a total quantity 10000. Mr A predicts that soon he could liquidate his position at 1.8900. Therefore he made Risk Management for the position: Stop Loss at 1.8800 and Stop Limit at 1.8900.

Apparently erratic price moves down to 1.8820 range. With all due consideration, Mr. A would like to close just like that his position at 1.8825. So Mr. A loss of 25 points (1.8825-1.8850 = -0.0025) Profit and Loss is calculated by the formula:

Given: Position Close: 1.8825 # Positions Open: 1.8850 # Quantity: 10000 # Then: Profit / Loss = (1.8825 - 1.8850) x 10000 # Loss = -0.0025 x 10000 # Loss = $ -25 (Mr A suffered a loss $ 25)

2. Switching

This action is similar to cut loss, but the difference after closing the position we are losers, we open a new position with the same direction as the market price movement. In the same case with a cut loss above, then we close our position at 1.7980 and then we open a new position Sell as prices tend to decrease. Thus, if prices continue to fall, say reach 1.7900 then our overall experience loss 20 points but gain profit by 80 points (1.7980-1.7900 = 80) so that the total profit we still get 60 points.

Example case
Mr. X estimates that the price will GO UP. So to get the benefits he decided to buy (Buy) in the hope that prices will go up so he can sell at higher price and get the excess profit. But it was not increased, even the price DOWN.

And after re-analysis, Mr. X finds estimates that prices will go up was WRONG. So what should she do? Rather than fight the market price and suffer a loss, after all, the price will drop even further from now on he decided to close its money-losing positions Buy and Sell then open a new position (in the hope that prices will fall). And it turns out prices continue to fall so that he had received benefits in excess of losses on a Buy position he previously closed. Then he closed the Sell position and receive the benefits.

Tips For You: # Do it only if the prediction gain exceeds the loss of switching the first position which will be closed. # If it turns out the price change was in accordance with the first prediction, then you will suffer a loss of 2 times, the first position and second position also

Case Details:
Mr. A opened a Buy GBP / USD at 1.8850 with a number of Quantity 30,000. Mr A predicts that soon he could liquidate his position at 1.8900. Therefore he made Risk Management for the position: Stop Loss at 1.8800 and Stop Limit at 1.8900. Apparently erratic price moves down to 1.8820 range. With all due consideration, Mr. A would like to close just like that his position at 1.8825. So Mr. A loss of 25 points (1.8825-1.8850 = -0.0025)
Known Position Close: 1.8825 # Positions Open: 1.8850 # Quantity: 30 000 # The Profit / Loss = (1.8825 - 1.8850) x 30 000 # Loss = -0.0025 x 30 000 # Loss = $ -75 (Mr A suffered a loss $ 75)

Then Mr. A again analyze and predict the price and know the price will continue moving down, then Mr. Sell A open positions with as many as 20 000 Quantity of 1.8820. Not for a while prices continue to fall until in the range of 1.8730. In the end Mr. A closed position at 1.8740. Mr. A to benefit 80 points (1.8820 - 1.8740 = 0.0080)

Profit / Loss = (1.8820 - 1.8740) x 20 000 # Profit = 0.0080 x 20 000 # Profit = $ 160

Overall results from two earlier trading is
Trading I = - $ 75
Trading II = $ 160
Profit = $ 160 - $ 75 = $ 85 or Rp. 765 000, - ($ 1 = Rp 9000)

3. Averaging

This method requires extra capital to maintain the position we have open that was moving against the market price.

Say the same case with the example above Cut Loss, then if we want to take action averaging then we open a new position but in this case is not like switching a closed position we are experiencing loss and opened a new position as opposed to our previous position by reason prices have moved down. In averaging we are not closing our position which has been opened (in this case Open Buy) and then we even menambahinya by opening new positions in the same direction, namely the Open Buy back!

Why is that? Do not we have done previously Buy and suffer losses, then why are we doing Open Buy again? The reason is simple, we would expect because the price has come down then the price will go up so that when we perform a second action Buy expected price moves up and even surpass our Buy first so that we gain a double advantage.

Case Example

Mr. X predicts that prices will go up so he opened Buy positions. But the price was moving down. Mr. X immediately analyzed again and the conclusion will come down in price is only momentary and will go up according to the analysis before he decided to open a new buy position when prices fall so that when prices go up again he not only has 1 position but 2 at the same profit. Sure enough, not long before the prices go up and then Mr. X closes its second position, the first and second.

Case Details:
Mr. A opened a Buy GBP / USD at 1.8850 with a number of Quantity 20000. Mr A predicts that soon he could liquidate his position at 1.8900. Therefore he made Risk Management for the position: Stop Loss at 1.8800 and Stop Limit at 1.8900.

Apparently the price corrected and move down to 1.8825. Mr. A re-open position Buy GBP / USD at 1.8825 with the number 10000. He also put Stop Loss at 1.8800 and Stop Limit at 1.8900.

Then not long after the price of re-corrected and touched 1.8900. Thus, Mr. A got 2 gain of 2 positions have been opened:

Position I: Profit / Loss = (1.8900 - 1.8850) x 200 000 # Profit = 0.0050 x 20 000 # Profit Position I = $ 100
Position II: Profit / Loss = (1.8900 - 1.8825) x 10000 # Profit = 0.0075 x 10000 # Profit Position II = $ 75

Total Profit both positions: $ 160 + $ 75 = $ 235 or Rp 2,115,000, - ($ 1 = Rp9000)

The three above risk management is very simple and easy to do. So, how unfortunately we suffered a loss just because we do not know the things above. But whether by knowing these three risk management we certainly have never experienced loss?

The answer is of course not. If you look at the three above risk management relies on one thing: our ability to analyze price movements. Yes, that's the core of forex trading. Risk management does not even become effective when we are not able to do the analysis correctly and accurately. So, knowing the analysis is imperative in starting an investment in forex trading.

There is still much to be learned in entering and investing forex world. We have just learned the outer portion of this investment. The important thing is you learn and keep learning.
(Source info: http://www.manfx.blogspot.com)