Forex trading comes with a unique set of risks. You can take control of these using our forex risk management tools, and ensure you’re well-informed with our range of educational resources.
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose.
Managing your risk
What are the risks?
| The risk | Why it happens | Ways we help |
|---|---|---|
| Losing more than the money in your account. | Forex trading is leveraged meaning you only need to put up a fraction of your trade’s value to open it. So you could lose – or win – much more than your initial deposit. | Set stop-losses and take-profits to have your trades close automatically at levels you choose.
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| Having your positions closed unexpectedly, resulting in you losing money. | You need a certain amount of money in your account to keep your trades open. This is called margin, and if your account balance doesn’t cover our margin requirements we may close your positions for you. | Keep an eye on your always-visible running balances in our platform or app, and add more funds if they’re needed.
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| Sudden or larger-than-expected losses (or gains). | Markets can be volatile, moving very quickly and unexpectedly in reaction to announcements, events or trader behavior. | As well as setting stop-losses, you can also be notified of significant movement by setting a price or distance alert, giving you the choice of whether or not to react.
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What is leverage?
Leverage enables you to gain a large exposure to a financial market while only tying up a relatively small amount of your capital. In this way, leverage magnifies the scope for both gains and losses.
Is leveraged trading risky?
Even though you only put up a relatively small amount of capital to open a position, your profit or loss is based on the full value of the position. Therefore, the amount you gain or lose could be relatively large compared to your initial outlay.
Manage your risk in our platform
Manage the risk of adverse movements
Set a stop-loss to close your position automatically if the market moves against you. But remember, there's no guarantee of protection against slippage – so your position could be closed out at a worse level if the market gaps.
Take profit automatically
Set a take-profit order in line with your profit target, and we’ll close your position for you when the price hits your chosen level.
Stay on top of market movement
Set price alerts, and we’ll notify you by text or email when a market reaches your specified price.
Always know your profit and loss
Keep an eye on the always-visible balance snapshot in our platform, and react quickly if the market moves against you, and trade out almost instantly to protect a profit or minimise a loss.
Other ways we help
Margin call close-outs
If your account equity (cash balance +/- running profit/loss) doesn't cover your margin requirement, this is known as being on margin call. We may sometimes close your positions in this situation, however you shouldn't rely on us doing so. It's sensible to maintain adequate funds in your trading account to avoid potentially being closed out.
Watch the video to find out more about margin call.
Learn to combat risk
Become a better trader, and learn more about managing risk, by working through free interactive courses on IG Academy, as well as live webinars.
Managing your risk FAQs
How does a stop-loss order work?
When you place a stop-loss order, sometimes referred to simply as a ‘stop order’, you’re instructing your broker to execute a trade on your behalf at a specific price.
You’ll usually do this to limit your losses on a position, in the event that the market moves against you. Set your stop-loss at a certain level, and your broker will close your position for you when the market hits that level – so you don’t need to watch the markets constantly.
It’s worth remembering that stop-loss orders do not protect against slippage resulting from markets ‘gapping’, or moving a large distance in a split second due to unforeseen external influences.
If you’re placing a stop-loss order on a long trade – a trade where you’ve bought a market in the expectation that its price will go up – your stop-loss order will be an instruction to sell at a worse price than the one you opened your trade at. Conversely, a stop-loss order on a short trade (where you’re selling a market) is an instruction to buy at a worse price than you opened at.
Where you place your stop-loss depends on how much risk you’re prepared to take on, as it will determine how much you might stand to lose if the market moves against you.
What’s meant by ‘risk’ in trading?
In trading, ‘risk’ refers to the possibility of your choices not resulting in the outcome that you expected. This can take the form of a trade not performing as you’d thought it would, meaning that you make less – or indeed, lose more – than originally anticipated.
Trading risk comes in a range of forms. The most common is ‘market risk’, the general risk that your trades might not perform based on unfavorable price movements – affected by a range of external factors like recessions, political unrest and so on.
Traders are usually prepared to take on some degree of risk in order to participate in the markets, and hopefully make their trading profitable over time. How much trading risk they’ll take on depends on their strategy, and the risk-reward ratio they’ve set for themselves.
It’s therefore important to recognize how much capital you can stand to risk, both on a per-trade basis and as a whole over time.
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