How Important Is It To Have Stop-Loss Order Included In Your Forex Trading Risk Management?

Gone were the days when trading required thousands and thousands of dollars as capital. Nowadays, Forex trading is made accessible to the public because a lot of Forex brokers are now offering as little as $50 initial deposit to open a trading account. There are even brokers who won’t require you to pay anything as an initial deposit to open a trading account. That’s something very convenient among retail Forex traders.

Unlike the stock market in which a $25,000 maintaining balance in the asset is required, there is no known minimum amount required to trade in Forex. Although you can start trading with a $50 minimum deposit, this doesn’t mean that you can start right away and win big-time after one day. There are risk factors to consider and it is something that you shouldn’t overlook.

Risk Management

This is a very important reminder to all Forex traders: You shouldn’t risk more than 1% of your entire trading account over a single trade. If this is the case, having $1,000 in your account means that you should only risk $10 in every trade.

Why is that so? Even the greatest traders are not exempted from losses. The Forex market is fair to all traders. This is the reason why you should keep the money at risk lower so losses won’t deplete your trading capital. Risk is calculated by the entry price and the price that you set in the stop-loss order. Then you multiply it to the pip value and the position size.

Pip Values

You will mostly see the word ‘pips’ when trading in the Forex market. This is because the market is moving in pips. For instance, the EUR/USD is priced at 1.2345. This means that euro is equivalent to $1,2345. In most cases, on pip is equivalent to 0.0001 or 1/100th percent. If the pip changes to 1.2346, then it is a one pip move. If the change reflected is 1.2445 then that is a move of 100 pip.

Using Stop Loss Order in Forex Trading

As you already know, the Forex market is unpredictable and changes can happen anytime. That being said, you need to have a stop-loss order that will protect your trading capital. You must use a stop-loss order just to secure your account when the base currency takes an opposite direction from your original bet. When using stop loss, you may have 10 pips lower than the current price if you think that the price will go up or 10 pips above if you think that the price will fall later on.

Why Are Stop Loss Orders Very Important?

For the very reason that you can never predict the future in Forex Trading, employing a stop-loss order is crucial to your trades. No matter how strong your strategy and setup is or how sure you are with the information that you have at hand, the future of the currency market is something that no one can predict. Therefore, you need to counter the risks before it hits you hard.