Be an investor who is proficient in risk management, rather than a trader who only wants to make money

"What matters is not whether you're right or wrong, but how much you make when you're right and how much you lose when you're wrong." - Stanley Druckenmiller

The foreign exchange trading industry is developing rapidly, and more and more people are flocking to the foreign exchange trading market to learn and invest in foreign exchange trading. Many traders are looking forward toforeign exchange marketTo earn a sum of money, we discuss the trend of the currency, discuss the cross star of the K-line chart, and it is inevitable that we will be excited and want to roll up our sleeves immediately.

However, most traders only know that it is very difficult to keep the principal, let alone make money, after they have really stepped into the foreign exchange market and tried it. They thought that the foreign exchange market is an ATM, but they did not expect to become someone else's ATM. At this time, because they ignored the risks existing in the market and did not have correct risk management, they will lead to losses.

Be an investor who is proficient in risk management, rather than a trader who only wants to make money

In fact, a complete trading system is not just a trading strategy, it also includes "managing funds and managing risks". Successful traders succeed because they have a very high risk awareness. More than 80% of the world's top traders believe that risk management is the first quality of a trader's essential trading qualities. Their advice to novice foreign exchange traders is to improve risk management skills.

How do Wall Street experts manage risk?

"Don't think about making a profit. Think about protecting the profits you have." - Paul Tudor Jones

Paul Tudor Jones is a Wall Street trader who was personally estimated to be worth around $6.30 billion in 2009 and was named the 369th richest person in the world by Forbes in March 2007.

Jones' trading career has not been smooth sailing. In 1979, he had a flurry of courage, making too many orders at one time, and ended up hitting the limit down, and by the time the flat single came out, he had lost two-thirds of his capital. He was so frustrated that he almost lost confidence in himself and almost changed careers. Since then he has learned to control risk and abide by principles.

Jones believes that the most important thing in making orders is to defend rather than attack. Every day he assumes that every order he makes is wrong, and sets a stop loss in advance so that he knows how much he will lose at most once. Jones advises all traders not to be arrogant, let alone conceited. Keep doubting yourself, doubting your abilities, and never being arrogant. You are finished when you are floating. This is not to say that you have no confidence in yourself. Confidence must be there, but enough is enough. Jones says he is more and more afraid of this business because he knows how difficult it is to maintain results. Every big loss is often when you feel good after making some good orders in a row.

The world's top traders think and think differently, and a quote from Tudor Jones accurately explains what risk management is. Risk management is finding ways to control losses. You have to know how much risk you are taking and how much you can afford.

This sentence tells us that in every trade, you should set an ideal or manageable risk threshold and ensure that it will never exceed this value. The set risk threshold is the maximum loss you are willing to bear on each trade - risk management is as simple as that. Control the desire for profit and keep the risk within your control. That is your task.

A reasonable ratio of risk to capital

"Honestly, I don't look at the market, I look at risk, reward and money," said Larry Hite, the world's top trader who went from $2 million to $800 million.

Trading capital can be used to calculate your risk. Trading capital is the amount you are prepared to use to trade. When considering a trade, you first decide how much you can afford to lose on the trade, and then double that amount (usually more than 5 times). If you subtract the maximum possible loss and you still have enough trading margin, then this investment is reasonable.

Some traders believe that the risk of each trade should not exceed 1% of their capital.

Suppose the account has $10,000

Then the risk (i.e. maximum loss) should be controlled at 10,000 * 1% = $100

When you lose too much money, adjust your risk to less than 1%. This strategy is commonly used by conservative traders.

However, every trade is different, so the risk can be adjusted according to the actual situation and personal risk tolerance. It's not that you have $10,000 in your account, so you have to risk $100 per trade. As long as the risk of trading is beyond your psychological tolerance, then this risk is not for you. But if you have a lot of confidence in a trade, you will naturally increase your investment. Risk is multi-faceted, but this is a point that most traders tend to ignore.

Ratio of funds per transaction to total account

Each trade should be less than or equal to 2% of the total account (no more than 2% of the total account), and traders should adjust stop loss and take profit according to the different fluctuations of each trade, which can ensure a stable risk-reward ratio. Although the stop loss range varies from trade to trade, the risk should be consistent. The risk of each trade should not exceed 2% of the account capital.

Remember that setting a stop loss range is the first step. If you always start by determining the amount of contract you want to buy and then setting a stop loss, you are putting the cart before the horse.

In addition, the standard position size setting method is to use a fixed ratio, that is, the trader determines the proportion of capital he is willing to invest in each trade risk. This number is usually between 1% and 3%. The more funds in the account, the lower the ratio.

If you have $10,000 in your account and you are willing to invest $100 per transaction, then the risk ratio is 1%. Once the trade goes against you and the stop loss is triggered, you will lose $100.

The advantage of a fixed risk ratio is that you have a good idea of every trade you make, and the volatility of your account funds is limited, allowing you to maintain good control over your account.