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6. The right to choose and manage risk
Don’t give in or give up
Why the inevitable risks of forex trading aren't.
Forex trading has plenty of risk built right in. Why add more if you don’t have to?
Before you give in to “the inevitable costs of doing business,” understand that it doesn't have to be that way. Know what you can control to manage risk (and cost), and choose a market maker that grants you the flexibility to do so.
You do have a choice.
| The nirvana of leverage: |
Your market maker offers 200:1 leverage, but that doesn't make it right for you. Keep your trading real: know when your market maker is facilitating your trade and when he's likely to become a loan shark.
And remember that the margin requirement is designed to protect everyone but you. It is never a reliable barometer of real risk. For example: say you're long and short two highly correlated currencies; you're already managing risk, even though you're required to double up on the margin requirement.
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| Tyranny of the round lot: |
Committing more than you want to a trade robs you of flexibility—and increases your exposure to risk. Choosing a market maker that allows you to trade any amount gives you the option to maintain your position (for example, in the face of a margin call) and manage the opportunity. Isn't that why you made the trade in the first place?
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Keeping your trade alive
Say you have an open position with a large unrealized loss and you're close to a margin call. You don't want to deposit additional funds, but because you think your position will turn around and appreciate you don't want to close it out prematurely.
Some market makers will allow you to avoid the pending margin call by closing out only 5% or 10% of your position. And you can use that same flexibility to take advantage of an unrealized profit.
| The high cost to limit risk: |
Choose a market maker that doesn't charge you for having the wisdom to set stop-loss and take-profit thresholds.
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| Revolt against price-skewing: |
Tired of seeing your positions go up in smoke? Choose a market maker who trades at the market—without discriminating or artificially taking out trades that don't fit his book of business.
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| The (inflated) cost to play: |
Exorbitant minimums are a holdover from the days of paper trading. Why invest $100,000 if that's way above your comfort level? Choose a market maker that lets you control your risk from the outset—by committing only the amount you need to trade or can bear to lose. Then you'll be in a better position to use leverage wisely and get the most out of your investment.
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| Settle now, not later: |
Immediate settlement minimizes counter-party and operational risk. Don't just ask for it. Insist on it.
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Take a number
Between the close of your trade and settlement day, your market maker is obliged to settle all the transactions that precede yours.
If everything goes perfectly, you're in luck. If not, be prepared to wait until your market maker has sorted everything out.
The right to choose and manage risk
Next: The right to understand cost
Back: The right to equal treatment
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