The famous1% risk rule in foreign exchange trading is that risk only 1 percent of your transaction accounts balance on any trade. This rule is elementary to follow for the traders. For example, if an investor’s trading account balance is only $100, then the investor per trade should risk only $1, which is 1 percent of the account.
Any Forex traders, irrespective of their trading account balance, size, and experience, can use this rule. Why a trader should follow the 1% risk rule, we will discuss in this article.
The Reason for Using Only 1%
The goal of a foreign exchange trader is to trade today as well as tomorrow in the market. Surviving in trade and continuing it, in the long run, is the only concerning issue for an investor. Now, if a trader makes significant transactions frequently, then quickly, his trading account will evaporate.
When an investor uses the 1% risk rule in his trading, his transaction risk reduces drastically. It is crucial for every investor if they want to be permanent in the foreign exchange market. Risk management is an essential Forex strategy, and every trader should follow it strictly.
Traders should always consider how they could manage and mitigate the risk instead of considering the profit-making aspect. Be careful on your trading journey and avoid being greedy. Remember that, only on one trade, you cannot make your fortune, and it’s simply impossible. But over a consistent period, such as days, months, or even after the year, you may make sufficient profit from your trade if you follow the 1% risk rule. Visit https://www.home.saxo/en-sg/products/forex and learn more about the importance of low risk trading approach and you will never trade with high risk to earn big amount of money.
Foreign exchange trading and wagering are not the same, and you should not treat the two aspects in the same way. Luck is not that important in Forex, and it would not help you; instead, your risk management strategy will help you gain success in the long run.
Is 1% Reasonable for Each Foreign Exchange Investor?
An investor’s trading risk will drastically reduce if he follows the 1% risk rule. It is a significant factor in a Forex trader’s career. But not every trader realizes the importance of following this law in their career. Some investors may use it in various ways; for example, some traders may risk 1.5 or 2 percent of their account per trade. The risk appetite of a trader may partially come down by it. And thus, the traders will be more successful in the trade execution process.
Some foreign exchange investors found 1 percent very rigid who want to make huge profit in this market overnight. But they don’t appreciate that they still can make a profit by risking only 1 percent.
On the contrary, a group of investors found that risking only 1 percent is too much frugal. They also think that the profit may not be worthy enough if they do riskless trading, and the return may be minuscule. However, the investors can consider different market circumstances for various transaction amounts. For instance, 1% would be a sensible option for a rough market. Again, the investor can consider risking 1.5 or 2% if the market acts a little better.
The 1% risk rule implies that a trader will risk only 1% of his account per trade. By following this, a trader can significantly reduce his risk at the transaction. Risk management should be the priority of every trader rather than focusing on making a profit. But an investor should not follow this rule blindly. Before applying this rule in his trade, he should make a thorough analysis of the market. Some traders pursue risk management in various ways, such as risking 1.5 or 2 percent of the trading account, and it entirely depends on the transaction circumstance.