Risk Management

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Definition – What does Risk Management mean?

Risk management refers to the process a forex trader goes through to control overall losses in a trade or account. Risk management is made up of three parts: identification, analysis and mitigation (when possible). An absolutely risk free trade is difficult to find, so risk management helps traders keep their total risk at a level they are comfortable with.

ForexTerms explains Risk Management

Risk management is an integral part of trading forex and it doesn’t need to be complicated. By setting stop losses and limiting the capital at risk in any one trade, a forex trader can reduce the risks of a catastrophic loss. Traders can also be more proactive by only selecting trades that fit a particular reward to risk ratio. Effective risk management can help a trader maximize profits and minimize losses.