Forex 101: How to Protect Your Portfolio

In the world of forex, investing successfully is about more than just turning a profit. The currency markets are incredibly complex and high-risk and, as a result, making money in isolation is no use to anyone. Why? The answer is quite simple: your forex portfolio will only prosper if you can retain the capital that you accrue.

This means that mastering the art of protecting your portfolio is essential. What’s surprising, however, is how few investors recognize this critical reality. You could make £100,000 in a day, yet if you lost it all the next, there would be no material benefit to you. This means that identifying and applying prevention and protection strategies is vital – here are three to get you started…

Choose the Right Broker

The first step in any successful forex strategy is identifying the right broker, and this is as important to retaining profits as it is to build them. Very few novice or inexperienced investors will possess the requisite degree of skill to protect their assets in isolation, so a broker that can offer a suitable support network is essential. As a result, it would be ill-advised to choose an execution-only service and rely on your own judgment; instead, look for a suitable advisory or discretionary broker, that can act as a guiding hand to steer your decisions.

Diversify Your Portfolio

Once you have a suitable broker, your next protective measure should be to concentrate on diversifying your portfolio. The reasons behind this are simple: the more diverse your portfolio is, the lower the risks of catastrophe striking. In your case, your area of expertise will almost certainly be forex. Some investors will feel comfortable diversifying their portfolio by adding a range of currency pairs; however, many go further still by adding entirely new markets, from contracts for difference through to shares.

Place a Limit on Your Losses

The third and final piece of advice we can offer you may seem self-evident, yet you’d be surprised by how many people fail to abide by it. It is, quite simply, this: never stake more than 10 percent of your total on any move. The reasoning behind this is easy to understand: a loss of 10 percent of your funds, if things don’t go as expected, is recoverable. A loss of 50, 60, or 100 percent is not. The trick is to ensure that, if all of your carefully laid plans go awry, you’ll be able to recover from the catastrophe and keep your account in the black.

Apply these three top tips today and watch your profits soar.