Forex risk management very important. Before you can manage your forex risk you first need to know how to calculate it.
Forex risk is very easy to calculate. Let’s look at an example. Say, you have a trading account with an account balance of $100,000. Based on your forex strategy you will set a daily risk level of 2%. Therefore, your daily risk based on the example above is $2,000 ($100,000 x 2%).
Let’s expand on this example. You made a number of winning trades during the day which increase your account balance to $105,000. Your risk percentage remains the same at 2%, but the fact that your account balance has increased means that you will be able to risk some more. the next day. Therefore, your daily risk would now be $2,100 ($102,000 x 2%).
On the other hand let says you had a few losing trades which reduce your account balance to $97,000. Your risk percentage remains the same at 2%. In this example your account size has reduced, so the amount you will be able to risk will also reduced as well. As a result your daily risk will now be $1,940 ($197,000 x 2%).