Do you know what the difference between the rich and the poor? Yes correct! The poor avoid risk while the rich manage it. Here we will teach you about a few simple tips in risk management or in other words how to manage the risks when you trade. We provide 4 moment each described in this brief.

1. Cut Loss

Cut the loss of the position of being in a state of ruin, to avoid loss of more.

- Make Cut Loss if after re-analysis, the price will continue to move against your position
- If it was your decision to Cut Loss is Right, you have prevent yourselves from greater loss
- If it was your decision to Cut Loss is Not Right, meaning that you have prevent yourselves in the case of the loss at this time (or even achieve profit)

2. Switching

In practice we close our position (cut loss) and the losers are at variance with our predictions and then open a new position to follow the price movement is contrary to the expectations, benefits both the position will be greater than the first position that has been Cut Loss.

- Make Switching to open the second position opposite the first position only when the benefits exceed the predicted value of the first loss position will be closed.
- If it turns out that the price changed in accordance with the input first, then you will suffer loss 2 times, the first position and second position also .

3. Averaging

Averaging position is open again with the new direction even if the long position at this time the price moves opposite the direction of the confidence or the price will move in line with our prediction. Averaging taken when we are sure that the price changes that occur will be changed again according to the input.

4. Cross Hedging

Hedging means that we will open the two opposite positions, so even if prices rise or floating down the value remains the same so it protects our position.

Hedging or Locking is taken because we have to locked position so that the value of profits and losses are always moving at the same time, due to have 2 positions opposite each other.

Logically, hedging is not allowed because it means we play with ourselves. Try to imagine at the same time you buy 1 lot position in the pair GBP / USD and sell 1 lot position in the pair GBP / USD. This means that the profit on your position is one of your losses on another position. The broker do not allow hedging. when you buy 1 lot position in the pair GBP / USD and then try to open a 1 lot sell position in the pair GBP / USD, this means that you close the first position.

Unlike the hedging,
Cross HEDGING means we open the two opposite positions against the currency pair will be different but still have the same pattern. The purpose here is trend movements of the two currency pairs tend to be the same as: GBP / USD the EUR / USD, AUD / USD with the NZD / USD. If the GBP / USD rose, the EUR / USD rose cendrung participate, while also going down.

For example, we have expectations GBP / USD will rise, and then open a 1 lot buy position, but the price was moving down. To prevent the loss position we open sell position 1 lot, not in the GBP / USD but in EUR / USD which also shows a tendency to move down the price.

Then move down the price of GBP / USD and EUR / USD. On the one hand, the value of floating loss GBP / USD up but, on the other hand the value of floating profit EUR / USD also increased.

Prices continue to move down until the start indicates that the price will rise again. At the time the price will rise again, the positions sell 1 lot EUR / USD closed with profit. Well, now, and remaining 1 lot buy GBP / USD, which is our first position.

Short story, the price continues to rise higher than the open price of the position buy GBP / USD on (profit) and then position 1 lot buy GBP / USD is closed in profit.

Tips for you:
1. Cross hedging can be used to analyze and generate profit as an example the case of the above
2. Movement of the currency pair does not always same pattern direction. Sometimes GBP / USD move increased, but the EUR / USD moved down. This may happen if the currency in the GBP and the EUR has decreased.
3. Movement of the currency pair pattern not identical. This means when the GPB / USD increase 5 point, does not mean that the EUR / USD also increase sure the 5 point.

Forex Mentor