Forex Risk Management

In This Lesson

Managing risk in leveraged forex trading.

Duration: 30 min

Overview

Managing risk in leveraged forex trading. This lesson will provide you with practical knowledge and actionable insights you can apply to your trading immediately.

By the end of this lesson, you'll have a clear understanding of the concepts and be able to apply them in real trading scenarios. Let's dive into the details.

Key Concepts

Leverage vs Position Sizing

Leverage available doesn't mean leverage to use. Position sizing based on account risk is what matters.

Currency Correlation Risk

Trading multiple correlated pairs unknowingly multiplies exposure to single currency movements.

Swap Rate Impact

Overnight financing costs or credits based on interest rate differentials between currencies.

News Event Risk

Economic releases can cause instant volatility spikes that normal stops cannot handle.

Margin Call Mathematics

Understanding exact margin requirements and account equity levels that trigger margin calls.

Practical Application

Now let's put this knowledge into practice. Follow these steps to apply what you've learned:

1. Calculate position size based on dollar risk and pip distance to stop loss
2. Check correlation matrix before opening multiple positions
3. Review economic calendar and close/hedge before high-impact news
4. Monitor daily and weekly swap costs for overnight positions
5. Set maximum leverage rules (10:1 or 20:1) regardless of broker offering
6. Keep 50%+ of account as available margin buffer to avoid forced liquidation

Common Mistakes to Avoid

Overleveraging with High Leverage

Using 100:1 or 500:1 leverage thinking it's "free money" without understanding margin call risks.

Not Accounting for Swap Rates

Holding positions overnight without considering rollover costs, especially in carry trades.

Trading Through Major News

Keeping positions open during high-impact economic releases without protecting against volatility spikes.

Key Takeaways

Position sizing trumps leverage - never risk more than 2% per trade
Currency correlations can turn diversification into concentration risk
News events create unique risks that require special preparation
Swap rates matter for overnight and longer-term positions
Margin calls destroy accounts faster than bad trades

Your Next Steps

Ready to continue your learning journey? Here's what to do next:

• Review this lesson's key concepts
• Complete the practical exercises
• Take notes on what you've learned
• Practice with a demo account
• Move on to the next lesson when ready