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Risk management in the Forex market

Control over risk makes an important part of successful trade. Effective risk management in the Forex market demands not only attentive observation of the extent of risk, but also the strategy (approaches) of minimization of losses.

The successful trader always considers the risks connected with trade in the international currency market Forex. It is possible to allocate two various approaches to trade the market Forex: conservative and risky. Conservative approach means placement of smaller number of transactions with currency, operating longer temporary periods, use of lots, smaller by the sizes, tough risk management and receiving moderate profits.

To minimize the risks connected with trade on Forex, the trader can use such tools as the limited order (limit order, or on a slang "limit" or "") and the stop order (stop-order, or "stop order", "stop"). Placing the market order, experienced traders always know at what level they would like to leave trade. The round-the-clock mode of trade on Forex complicates instant response to market changes as these changes can happen in an absence period of the trader in a workplace. "Limit" orders and "Stop" allow the trader to close or open automatically positions in response to achievement at the price of currency of a certain level.

The limited order is intended for profit earning from a position as a result of its closing on the price determined earlier. For a long position (in which position is the buyer from the moment of speculative purchase of currency and before its sale), the limited order is placed at the level, higher, than the current price. If the trader is in a short position (or "shorts" takes place from the moment of currency sales before its purchase), then the limit has to be placed below the current level of the price.

The stop order is used for loss minimization. For a long position, the stop order is placed below the current price, for short - above. The stop order is intended automatically to close a position if the market moves not as the trader foretold that allows it to avoid too big losses on such transaction.