Trading on the Forex foreign exchange market using leverage (leverage) gives investors the opportunity to multiply their profits with a relatively low financial outlay. This is why many, especially inexperienced traders, consider leverage to be an easy way to make quick and easy money, even if you start to invest with a modest amount. However, as the old saying goes, "every stick has two ends".

Indeed, while the leverage actually increases the chances of multiplying profits and creates the possibility of profitable transactions, it is also inseparably linked to the increased level of financial risk. Therefore, every Forex player should know the basic principles and strategies of risk management, i.e. risk management. This is crucial for any trader and it is not possible to interfere with the potential risk, even if it seems to us that the warnings about losses are exaggerated. There are several methods for hedging capital and minimizing risk in Forex trading. The most important and effective orders are usually stop loss and take profit orders, diversification and the 2% risk rule (appropriately selected position height).

Stop orders from many brokers, such as CMC Markets, can be set automatically, which makes them very useful when a trader cannot monitor market events and trade progress. Let us be realistic - few can afford constant control of the market. Therefore, automatic settings of certain orders seem to be an excellent solution.

A stop loss order is designed to limit the risk of loss if the market turns against us - that is, if the exchange rate of a currency pair changes to our disadvantage.

Take profit determines the level at which we want to realize our profit from the transaction (close the position at the moment when the position reaches a profit level set from above).

Trailing Stop Loss can be called a specific combination of stop loss and take profit - it reduces losses at an unfavorable exchange rate and at the same time allows us to make profits when market rates are favourable to us.

Portfolio diversification is the right choice of instruments in our investment basket. In the case of Forex we only talk about currencies, but it is not uncommon for seasoned players to have several accounts they use in parallel - one foreign currency account on Forex and another one with bonds, indices or stocks for CFDs. However, it is definitely not a suitable method for beginner traders as it requires good knowledge, experience and discipline.

Another way to diversify your currency portfolio is to take advantage of the fact that many pairs are correlated with each other. When diversifying, choose the stable currencies that should give you a profit. A good example would be to open a long position on EUR/USD and a short position on USD/CHF or USD/JPY at the same time. Be sure to pay attention to periodic fluctuations in exchange rates, including those of the world's top currencies. Although the main currencies are usually considered to be quite stable, an example of their volatility, and even quite worrying, may be what is currently happening with GBP in connection with Brexit.

2% risk is the rule that you should not invest more than 2% of your capital in a single trade. It is even said that it is only 1% and investing more than 4-5% is considered to be quite aggressive trading. Investing only 1-2% we know that it will not be a very severe loss and it will be easier to accept it in case of failure.

The ability to admit one's mistake (there is no investor who has never made a mistake), learning from one's own failures, taking notes on trading, or long-term adherence to once established rules also increase control over our capital and help to reduce the risk of financial losses.