Foreign exchange trading is high-risk. In practice, a trading account could be zeroed within hours. Every trader needs a clearly defined risk management strategy in order to achieve positive and consistent results.

There are two main methods of risk control. Depending on the trading strategy, one, the other or both are used together.

The first approach evaluates individually the impact of each trading position. This is the most common approach in forex and is known as money management.

The second approach considers the relationship between different open positions (when they are more than one). This method is known from traditional portfolio management and reflects the idea of diversification.

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