10.1 Why is Risk Important?

Additional Reading about Why is Risk Important

Why is Risk Important - Text Version

Risk Management for Forex Trading Beginners

In this course, we are going to talk about RISK.

R-I-S-K. It is that other four-letter word ending in “K” that we also avoid too often!

If you want to make money as a trader, whether it is a side project, or you aspire to make it your primary source of income, you must learn how to manage your risk.

It is the only way to be consistently profitable over time, not just profitable some of the time.

If you ignore risk, you will lose. You may lose your account in just a few short weeks after a handful of trades, or you may lose it slowly over a period of months or even years. Either way, you will lose if you do not have a process in place to manage your risk.

Go to any broker’s home page, scroll down to the bottom, and you will see disclaimers such as “Trading Forex on margin carries a high level of risk…” and “do not invest money you cannot afford to lose”.  Even the brokers and regulators want you to know the importance of risk.

But don’t just take it from us at FX Academy. Take it from the best traders out there. One of the most successful hedge fund traders in history, Ray Dalio, writes in his book, Principles, “If you are not defensive, you are not going to keep money.”

So how do we do go about actually managing our risk? How do we do it in a way that will put us on that path to being profitable and consistent?

You can do three things.

1. Trade with only risk capital.
2. Manage the size of your trades.
3. Make sure your profits are larger than your losses.

 Let’s explore each of these items one-by-one in the next lessons within this course.