The COVID-19 pandemic brought many thriving business sectors to their knees. With almost every affected country imposing a complete lockdown, economic activity came to a standstill. Check out for Forex trading strategies.
Not only was there an acute shortage of consumers because of mobility restrictions, but the global supply chain ecosystem had also been profoundly disrupted owing to a ban on inter-state and country travel.
With the shutdown of non-essential businesses, poor cash-flow, and supply chain disruption, the continuing activity frequently seemed impossible. During this time, a lot of workers that had lost their job to the pandemic resorted to alternative sources of earning money such as Forex Trading, but uncertainty across FX markets had also skyrocketed.
To ensure that their investments were in safe hands, beginner traders had to resort to trusted and regulated forex brokers such as those found at FX-List.com/regulated-forex-brokers.
New traders have to be wary of the potential risk that volatile FX markets expose to them, and this is why a salient risk management strategy becomes vital. Here we have formulated the essential tips that can help them in this regard.
Use A Prudent Stop-loss Order
Even during normal market functioning, a protective tris a vital risk-management strategy, which features in the arsenal of seasoned FX traders. In the age of the pandemic, the importance of this tool has increased exponentially.
Since March, when the ripples of the epidemic were felt the most, the EUR/USD currency pair was facing 100 to 300 pips as a norm. If you compare these statistics, with those a few months back, the situation appears very grim.
Trading in these unpredictable circumstances needs a stop-loss order so that the risk of excessive loss and margin calls can be nullified. Stop-loss placement can be a difficult task. Traders need to consider broadening the stop distance when there is a notable increase in volatility.
If portion size is not found while widening the stop distance, the risk can also increase so this should be dealt with preemptively.
Trade Positions Require More Room
The art of placing trades will require significant modification- in the time of unsettling volatility, price movements should connect with the entry price sporadically before a direction is agreed upon.
With the strategy of allowing positions more breathing space, protecting gains is also essential. The difference between successful traders and beginners is this: prudent traders respect profit targets and use a trailing stop order to prevent a good position turning into a whopping loss.
Leverage is used in forex trading to increase returns- the higher the leverage the greater is the magnitude of profits. However, leverage is a double-edged sword. While it can maximize returns, it also significantly increases losses.
So during the pandemic, when the market is uncertain, leverage needs to be adjusted for shifting movements in the market price. This will allow traders to strike the perfect balance between risk and profit.
The importance of staying updated with financial news, be it central bank announcements or geopolitical decisions, is becoming vital in the age of COVID-19.
Since this pandemic is uncharted territory for all stakeholders, traders need to stay on top of their game as trades are changing on an hourly basis. The best strategy is to stay wired to news and track open positions.
But, there will be instances in which monitoring information will become nearly impossible such as global holidays and weekends. To cater to this information blackout, traders should evaluate their current standing and choose to liquidate their positions before a trading day closes.
Trade with Lower Equity Risk
Equity put simply, is the amount of money a trader has in their trading account. It is calculated by adding or subtracting any profit or loss from open positions to the principal balance.
If traders do not have any open trades, then the balance becomes the equity. Traders should also consider rolling back their equity risks during the spread of the virus.
For example, if you usually traded with a three to five percent equity risk, then it should be dialed down to one to two percent. Though this varies from person to person, as each person has a different intuition and a trading style, the statistics do not lie.
If you trade with a 5% equity risk and place 20 trades that go bad, then you can potentially wipe out your trading account. This is worth considering during these unprecedented financial times.