Effective Ways to Protect Forex Money from Losses

Forex trading is very unpredictable and susceptible to the ups and downs of money trading. Although it is the most profitable investment today, we have to protect forex money we invest in it. One protective tool is called stop loss orders.

Stop loss orders are limits we put on our invested money through our brokers. Stop loss makes sure our losses are capped in case of a sudden price fall. There are 3 types of stop loss orders that effectively protect forex money from losses. In summary, they are Good Till Canceled (GTC), a stop loss that continues until we cancel it; Day Order, which is good only for a day; and Trailing Stop, a stop loss with a stop price near the market price and never lowers than that.

Other forex tools to protect forex money can be in the form of Take-Profit, or what traders call T/P. They are also sometimes called limit orders. Like stop losses, they also turn into market orders to trade currencies automatically when the limit level is reached. Points or levels for T/P also abide by stop loss rules to protect forex money with.

We have to remember two things in investment protection: first, trailing stops have no level or point of limit. This is to give way to realizing a profit and not just to protect forex money. Second, exit points should be rated higher than the current market rate, not lower.

Another way to protect forex money is through effective exit strategies. We should remember to answer 3 questions when designing an exit strategy: how long we plan to do the trade, how much money we're willing to risk, and where we want our exit point to be.

A word on how long we plan to do the trade: it depends on what trader type we are. If we're a long-term trader - we plan to do the trade for a month or so - we need to set goals each year and focus on that single trade. Set trailing stops to often lock in profits to protect forex money and lessen our downside potential. Long-term traders always have the goal to protect forex money, especially the capital.

To protect forex money we need to know what forex tools are available to us. Stop loss and trailing stop tools are important devices in forex trading that aid us in keeping losses to a limit and protecting our gains. With such tools in place in our trading we make forex a more profitable investment option.