Trading on the foreign exchange market (Forex) is a lucrative opportunity for those with enough skill, patience and understanding of the nature of traditional currencies. Even in this day and age, the majority of people find trading in the Forex market to be a preferable solution to investing in cryptocurrencies. 

One reason behind this is the fact that the overall value of the market seems to be substantially greater, as well as that there’s a potentially infinite supply in circulation. Still, in order to make this into a truly lucrative opportunity, one needs to find a perfect balance between risk and reward. Here are several things that you should know on this topic.

Don’t trade with your own money

The first thing you need to understand is that if you’re a renowned Forex trader, it’s possible that other people will offer you to trade with their own money. All you need to do is find an adequate proprietary fund. This way, you can create a risk-free trading scenario where you get to keep a part of profits and let the fund take all the risk. This is due to the fact that the fund is used to cover the losses, which definitely benefits you quite a bit. The problem with this method, on the other hand, lies in the fact that it’s an option that might not be available to you from the very start.

Stop orders

Another way to manage the risk of your trade is to set adequate stop orders. The most important thing you need to understand here is that in order to make money, you don’t really have to succeed in the majority of your trades. It’s the value of each individual trade that matters, which is why you can use stop orders in order to make a self-sustainable system. The first thing you need to do is set a stop order at 1 or 2 percent of your total trade asset value in order to prevent a scenario where you lose more than you can afford. Second, you need to set your stop gain order at 6 or 7 percent of your total asset value. This way you can avoid a scenario where a trend’s value plummets after a long period of value increase.

Day trading

The next thing that will determine the risk-reward ratio of your forex trading is the question of whether you choose day trading or position trading. The former trading model is more volatile but also a lot lower in value, which means that the volumes of money that you gain/lose are substantially smaller. You also get greater control over your funds, seeing as how you get to make decisions that involve them much more frequently than with position trading. Keep in mind, however, that this is a concept that requires a reliable broker or online platform like Ever Forex, that will allow you to make decisions in real time.

Currency pairs

One of the factors that affect the risk-to-reward ratio of your trades is the currency pair that you choose. You see, major currency pairs like GBP/USD, USD/CHF or EUR/USD, have a lot lower volatility. This means that the chance of loss is substantially lower but so is the chance of profit. For those who are interested a bit more in the risky side of making these trades, there are some currency pairs that are substantially more volatile. These are usually pairs on the emerging market, yet, this list too has its major and minor currency pairs. The major ones are AUD/JPY, NZD/JPY and AUD/USD.

Forex leverage

One more concept that can allow you to earn money much faster is the Forex leverage. This allows you to use 10 or 20 times more money than you’re investing in order to make lucrative trade. The money you start with is called Forex margin and once you deplete your funds, you’ll get a so-called margin call, which will make you unable to make any more trades. Keep in mind that while your gains would be substantially greater, the same would go for your losses, which makes this concept into a double-edged blade.

Conclusion

The most reliable way to get disappointed (regardless of the thing that you’re dealing in) is to set unrealistic expectations about your gains or losses. Keep in mind that the higher the risk, the bigger the profit. This means that if you decide to take a safer path, it might take you a while until you reach your financial objectives. Remember, however, that setting your expectations low in the start and then adjusting them as you gain experience and knowledge might be the right thing to go.