Do you understand risk management?

To help navigate through what can be a testing and sometimes painful experience of trading on the markets the Ice Fx team has created a helpful breakdown of how risk can be mitigated when trading the financial markets.

Risk can be accessed in a few ways but we think the two most important facets of risk are what we term 'market risk' and 'trade risk'.

Market Risk

This risk is an all encompassing perspective of how the market that is being traded is behaving. When trading the forex market it is important to understand what factors are important to the fluctuations of forex. Macro-economic variables are the primary driver here and should never be ignored. Both Employment data and Inflation figures are viewed as the most significant drivers in forex movement. If data for either of these are being released for the traded currency then expect volatility especially if there is uncertainty around the exact details. Non farm payroll figures, (employment figures in the USA -which tend to be released on the first Friday of each month), are an excellent example of how volatile the market can become during such data releases.

If you are unsure on the effects of such data then it is always highly advisable that you avoid trading during these periods.

An excellent idea is ensure that you look at an economic calendar prior to any trades being placed. Make this viewing of the econimc announcement calander as part of your essential trading routine and it will serve you well by ensuring that you do not expose yourself to any undue risk.

Trade Risk

When placing trades you should be certain to only expose yourself to a small percentage of your trading account on any given trade. We highly advise this figure should be close to 1% of your total account size on any given trade.

You should use a trade size calculator or a lot calculator to determine what value you should trade with, as not to over expose yourself.

Being mindful of your trade exposure will ensure that you control the extent of any losses that are made and observing a regimented approach to trade analysis thus maximising potential trade reward/profit will keep your account growing.

For more information and guidance on what to trade and how-to trade be sure to visit our dedicated forums for our clients and stay tuned to all future news and information releases by Ice FX.

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