What Is Risk Control and Why Is It So Important?

Risk control is often times misunderstood. I have actually seen it written that risk control is “not that important”. Naturally when I read this I almost fell off my chair!  Only someone who doesn’t trade Forex would tell us that risk control is not important. In fact, risk control is extremely important because without controlling your risk you will not be in the Forex trading game very long….and you can’t win if you aren’t in the game!

Risking 50% of your account equity is foolhardy no matter how sure you feel about the outcome of your trades. If 2 consecutive losses can take you out of the game you were never really in the game to begin with. 

A common method of controlling your risk is to only place a small percentage of your account equity on each trade. 1 to 3 percent is what is typically recommended. This gives you the ability to ride out those rough periods in trading when the Forex market and your trading system don’t quite see eye to eye. 

Your trading system will dictate what percentage of your equity that you risk per trade. How much you risk per trade should always be studied closely. If the amount is too small your account equity will grow much slower than it should. If the amount is too large…well we all know what can happen in that case.