RISK MANAGEMENT
Risk management is like dancing, everyone has their own style with the goal of preventing excessive losses. In today's trading environment, we see a a situation where brokers dont do all they can to help traders manage risk. We see brokers enforcing high minimum withdrawal (some as high as $50) to prevent traders from quickly withdrawing their funds when they feel the urge/temptation to over-trade and blow their account. To manage this withdrawal risk, I have decided to only trade with brokers that have a a very low minimum withdrawal requirement.
Another risky scenario we see today is a cae where some brokers refuse to create online wallets where traders can warehouse funds which they do not want to use for trading. The risk here is that if all your funds are in your trading account and there is slippage/gapping of price; it can eat into the funds you didnt intend to use on that trade. Lets say you set a stop loss at 1.1650 and slippage causes the stop to be executed at 1.1600 you lose an extra 50 pips you didnt plan for and that extra loss is debited from the funds in your account. But if you didnt have any funds in your account, negative balance protection would have kicked in and the broker would have been liable.
To manage this risk, if a broker doesnt create online wallets for traders I simply open two trading accounts and use one of them for warehousing unused funds.
Another risk factor we see today is many brokers not offering guaranteed stops, which is a usefule tool for trading news/other volatile markets. Occassionally I trade news events such as NFP so what I do to manage this risk is i just fund my trading account with the exact amount needed for margin and stop loss plus a few extra. I do this so that even if price slips/gaps there will be not alot of extra funds inmy account to be affected.
Risk management is the king in trading. An in depth understanding of it guarantees your profitability. Risk management begins with you not trade execution. Your risk must have been properly calculated and well figured out before executing a trade.