Posted by forex at 1:36 AM
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1. Select a reputable online broker. There are different types of FOREX brokers, some of whom bet against you when you trade. These risky brokers are called market makers and you should avoid them -- their interests don't coincide with yours and they must constantly avoid the temptation to cut corners, to your detriment. For instance, they may artificially lower prices just to have your position hit its stop-loss limit -- the price that represents the maximum loss you are willing to accept -- causing you to lock in a loss. Instead, use what is called a non-dealing desk (NDD) broker; they don't trade against their customers. You can research brokers on the Internet, see Tips.
2. Pay full cash for your trades. Avoid margin buying, which is the purchase of an asset on partial credit. Margin is the percentage of collateral you put up to secure a trade. If you only put down a small amount of margin, brokers will quickly demand more if your position starts losing money. If you cannot supply more collateral, the broker will close out your position and lock in your loss. Don't give it the opportunity.
3. Place a stop-loss order for each position you trade. If the price of your FOREX currency pair -- FOREX is always traded in pairs -- hits the stop-loss price, your position will be automatically closed out. If you set your stops close to current prices, you limit your potential losses but increase the possibility of being stopped out. You must evaluate which of the two risks you dislike more.
4. Trade binary options instead of currency pairs. A binary FOREX option is a standardized contract that places a bet on the price of a currency pair at the option's expiration. Expiration periods vary from a few hours to a week. If the option achieves the target price, it pays a given amount, usually $100. The amount you pay for a binary option (the premium) is situational, but is typically between $20 and $40. Binary options limit risk because the premium is the most you can lose in a trade.
5. Hedge your positions. Hedging is a complex topic but is worth researching. Basically, you place counter-trades against your existing positions to lower risk -- the loss in one position is (partially) offset by a gain in the counter-position.