Trading is the exchange of goods between two or more parties.For centuries, trading has been done by our ancestors as a way of life.At that time, barter was always practiced between the natives.A native may exchange a bucket of fish for cloth.This is how people did business centuries back.In the present day, goods for goods is no longer the mode of trading but money for goods or goods for money.If you want to get a loaf of bread, you will have to exchange money for it.Such is the case if you want someone to fix a broken pipe in your kitchen.You exchange money for services.
Years ago, people take certain risks when they exchange their goods for another goods.Example, a fisherman gets low quality cloth for a dozen of fish.In order to lessen the risk, the native might ask the cloth trader to let him examine the cloth, to make sure it is of good quality before he trades his bucket of fish for it.This is an example of risk management.Thus, risk management is actually a means to lessen the risk of trading.
In recent times, the world of trading is done in the world wide web.Though there are a many opportunities to make money, yet risks can be out of control.If one has made a big profit for a risk he has taken, this might trigger a gambling instinct one may succumb to.
And if this happens, forex trading will turn out to be a form of gambling rather than a form of professional career.Yes, speculating is indeed a part of trading.However, speculating for forex trade and gambling differs in the risk management schemes taken by the trader.Each trader has the option to formulate his own style and implement his own risk reduction schemes.
It is an important risk management rule in forex not to risk more than 3 percent of the total account per trade.This scheme is called a simple equity stop, a stop loss strategy in risk management.A chart based stop, on the other hand, is used by many traders.This stop loss system depends on th signals as indicated by chart patterns, and other hints acquired after carefully analyzing the forex market.There are many other kinds of methods and risk reduction schemes in forex trading.These are but a few of the risk management schemes.