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The dos and don’ts of forex trading: managing risk in the USA

Forex trading is all about buying and selling one currency against another. Forex trading has been regarded as one of the oldest forms of international trade since 1971. It has attracted immense popularity worldwide as one of the most popular forms of investing.

However, before you start putting your hard-earned money on the line – know its pros and cons. If forex trading yields profits, it can also cause a sudden loss because of risk factors rife in this trading industry. Understanding why forex trading involves risk is important. As a trader, you not only trade one currency against another but the entire international forex market, where such activity is carried out by millions of other traders like you on a vast scale. 

Managing risk, especially in the USA, is trickier because the markets are relatively more volatile and unpredictable. That said, gaining a sound understanding of the various types of risks associated with forex trading, such as currency, liquidity, and market risks, can help traders minimize the risk of incurring a financial loss and enhance their profits. 

Dos for Managing Forex Trading Risk in the USA

Understanding the Market and its Drivers 

Trading, whether done online or offline, constitutes some level and type of security risk to be put up with.

However, you can manage these risks to a great extent so that when things do not work favorably for you or you suddenly start incurring a financial loss, it is not a total financial disaster. Here are a few tips for managing forex trading risk in the USA:

  • Understanding the global forex market

Every forex trader must understand the global forex market, which means the demand and supply in the Forex currency trading market across all of the different currency pairs. If you want to manage risk in the USA, you must understand which pairs are more likely to move vs. staying put and then focus your time on these pairs.

  • Understanding the factors that drive forex market fluctuations

The main factors that trigger forex market fluctuations are as follows:

Interest rates: Interest rates are among the most popular indices traders use to speculate on potential market trends. The more the interest rate, the more gainful it is to borrow currency. 

Trade Balance: The trade balance comes in handy for traders in evaluating the rates of exports and imports to indicate how effectively a country’s economy is performing.

Inflation: Inflation is another salient aspect of forex trading as it will urge the price trend for most traded goods. As inflation increases, the value of the currency it represents decreases. 

  • How to stay updated on market developments

One of the best ways to stay updated on market developments is to keep tabs on the news regularly so that you can know about the latest happenings in the global financial markets. You can scout online to find some of the best websites offering the best forex trading strategies to maximize your chances of success in the market.  You can also learn about current news from US and world-class forex traders such as Mark Mobius, Terry Housh, Rolf Adler, etc.

Using Proper Risk Management Techniques

It is always important to develop proper and effective risk management techniques. These apply to any type of trading and can help you lessen and better manage your forex trading risk in the USA. Here are a few tips:

  • Different risk management techniques and how they work

Implementing a few popular forex trading risk management strategies is a great way to ensure your trading is safe, spread out, and not focused on only one or two trades. Some of the most effective and proven strategies include stop-loss and take-profit orders.

  • Implementing stop-loss and take-profit orders

Try to use stop losses to minimize losses on trades that either start poorly or where there has been a sudden significant change in market conditions. When your trade reaches the predetermined percentage or dollar amount loss from when you bought it, you can set a stop loss order to close out the trade at a loss to limit further damage.

Take-profit orders are another risk management technique that can help manage the overall forex trading risk in the USA. Take-profits are the average percentage for a trade to be closed out at a profit, and this is placed as part of the trade deal before it is initiated. They are also known as trailing stops.

  • Managing leverage and margin effectively

Another important step in managing forex trading risk in the USA is to use leverage and margin correctly. It will go far beyond simply setting the right margin requirements. Long exposure to trade can have significant and potentially devastating implications, so you must know all of your options regarding managing forex trading risk in the USA.

Choosing the Right Broker 

  • Importance of choosing a reputable broker that is regulated in the USA

Investing in forex trading to gain profits is very popular, but owing to the complexity of the market, choosing the best forex broker in the USA that is regulated is crucial. Not only will this ensure that your financial transactions are being watched by the U.S. Securities and Exchange Commission (SEC), but it also ensures that a federal law called the Investor Protection Act protects your investments.

  • Things to consider when selecting a broker
  1. If you are a brokerage firm’s customer and have a trading account with it but, for some reason, cannot transfer your account to a different platform, take the step to check whether the transfer is free of cost. It will help you save the fees worth $75 (per account) this year from paying!
  2. Another important factor is the type of customer service and the fees they charge for each transaction. Simply put, having great customer service and affordable fees helps keep clients engaged in their trading strategies. It also helps you differentiate between standard and substandard brokers in the market.
  3. As one of the critical conditions set by some brokerages, traders need to keep their accounts open for a specific period before they can get their trade going with them. While these conditions are subject to be set by brokerages, adhering to them seems better, as it will deliver a more consistent trading experience.
  4. As mentioned above, the forex broker you choose must be regulated in the USA, and you can be sure about it by conducting some research in advance. Also, consider delving into customer records; failing to do so will reduce your preferences and lead you to a lesser-known brokerage firm not legally bound to carry out client interests.


  • Examples of trusted forex brokers in the USA

The number of trusted forex brokers in the USA is plentiful, so you can expect the best platform regulated by individual states. These brokers help enhance the odds of success in trading and bypass potential scams or frauds that commonly occur in forex. Some of the most trusted forex brokers in the USA include:

– TD Ameritrade
– Interactive Brokers
– Ally Invest

Don’ts for Managing Forex Trading Risk in the USA 

Don’t Trade Without a Plan

Typically, forex traders trade to make a profit. However, as with any investment, losing every last bit of your money is possible if you don’t have a plan. You should always trade with the goal of making profits and constantly manage risk so that losses are minimized.

  • Importance of having a Forex trading plan

An FX trading plan will prevent the “speculative trader” from speculating with company funds. It will allow you to define your risk and reward, determine the appropriate position size, and generally keep emotions under control. A written trading plan is critical for traders of all experience levels as it guides future action and avoids emotional decision-making – one of the main reasons traders fail in the forex market.

  • Elements of a good forex trading plan

Always trade a plan, and have realistic expectations:

Have a Trading Plan:

A trading plan never guarantees a profit, but if followed correctly, it will help traders to limit their losses and maximize their gains. Ideally, you should always trade your plan without expecting unrealistic gains. 

Never Trade with Emotions:

As a forex trader, you need clarity of mind and emotional control. If you feel emotional, you are bound to make emotional decisions. Emotions make trading very hard and can cause you to misread the market.

Don’t Attempt the Impossible:

When executing your forex trading plan, you should trade only in a market that has equal chances of profits and losses. Trying to trade in a market where most of the time, one side will win is simply impossible to predict. 

Don’t Overtrade: 

Avoid trading overly or making too much effort to ensure guaranteed profits at all times since doing so will incur a loss to you or urge you to get out of the business once and for all. You need to know when the risk overbalances the reward, and it is time to change your trading strategy.

  • How to stick to your plan

Sticking to your plan is a great way to attract enormous success to your trading activities. To help you determine exactly why so, first ensure what elements can, in general, be instrumental in carrying out your plan, including the exact factors that will urge you to take action. Next, nail down the rules that you will have to implement. The nitty-gritty of the rules is to implement them in the market in a way that can deliver profit to you and bypass losses in an equal way. You can stick to your plan in all market conditions and adjust it depending on the market dynamics.

Don’t Overtrade or Take on Too Much Risk 

US brokers tend to make too big and overtrade trades, giving them the illusion of being profitable even when losing money. 

  • Risks of overtrading and taking on too much risk
  • If a trader takes on too much risk, they will carry high leverage, one of the margin call triggers. If a margin call is triggered and not met by the trader in time, it will lead to forced liquidation.
  • Overtrading can exhaust account functions and resources. It can push traders to take on more risk than they are comfortable with or that they have the resources to sustain.
  • Overtrading can lead to psychological issues such as fear or greed. Fear of missing out on profit opportunities will drive traders to take on too much risk to avoid losing profits from their winning trades. Greed is the opposite. Fear of losing out on profit opportunities will push traders to take on too much risk and trade in such a way they are exposed to a high risk of loss.
  • Setting realistic trading goals and limits

Setting realistic and achievable goals and limits is another way to ensure that risk is not taken on without thought. Traders should understand their position sizing and how much risk their account can handle. They should then set appropriate goals and limits for each trade that they take on. The good idea is to set position size and risk limits before making trading plans. 

  • Avoiding emotional trading decisions

Emotional trading is more likely to cause losses when the trader is not in control. Emotional trading happens when traders with a loss continue trading in a losing position. It is the most common mistake that results in losses. All winning trades should be marked as closed trades, and new positions should be opened only after looking at the current trend and account value. 

Don’t Ignore Risk Factors

In trades like forex trading, in general, approx. 40% of all traders incur a financial loss by losing the money they have staked, and such incidents commonly occur at the end of investors taking on excessive risk. This phenomenon is commonplace among traders who overlook gaining general knowledge of the risks of forex trading and take the plunge to invest their money in excitement without thinking about the consequences. The best way to bypass such issues is to monitor risk factors, for example, fluctuations in trend and volatility at all times.

  • Common risk factors in Forex trading

When calculating risk, traders should include all these factors:

  • Risk of losing all positions
  • Risk of losing account value
  • Risk of losing customers’ confidence in their trading ability
  • Risk of causing market panic or a flash crash
  • The importance of staying aware of risk factors and adjusting your approach as needed

The relationship between risk, management, and profits is the most essential aspect of the trading industry. It is true for forex traders and those who trade other types of financial markets. To ensure that a trader will be profitable in the long run, they must consider their risk management and profit management strategies, monitor their trades frequently, and adjust their approach depending on the market scenario.


Whether you had traded forex earlier or are currently trading it, the odds are that you already know that the market is volatile. That said, understanding Forex risk management is crucial for every new trader. Hopefully, through this article, we have done our best to provide you with a solid understanding of what to do and what not when managing risk in forex trading.

Even then, we mention below a few other unmentioned key points for traders to keep in mind while trading forex to avoid risk as much as possible:

  • Diversify your trading by opening multiple accounts in different locations
  • Utilize stop losses and trade only with a small amount of money
  • Avoid margin trading or day trading – wait for the major price patterns to form first
  • Place trades when the markets are open and in real-time, never before or after they are open
  • Avoid trends that look too good to be true

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