Zero Risk Trading Review

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Contents

Warrior Trading Blog

  • Value For Investors

Summary

TradeZero offers competitive commissions along with a powerful platform for active traders and direction market access. The biggest downside is they don’t allow US citizens to open accounts with them.

Pros

  • Wider range of investment vehicles than some other day-trading firms offer.
  • Several platforms to choose from.
  • Software fees are competitive.
  • Rebates are available for active traders.
  • Two separate insurance policies.
  • No PDT rules.
  • Only $500 is required to start day trading.
  • High degree of leverage with a small balance.
  • No additional fees for infrequent traders.

Cons

  • Not regulated by the U.S. government.
  • No SIPC insurance.
  • Both forex and futures are missing in action.
  • Customer service is available only during the weekday.
  • Wiring money into and out of an account regularly will get expensive.
  • Low-priced stocks have lots of restrictions.

TradeZero Brief Overview

TradeZero is a Bahamian brokerage firm that offers some enticing day-trading services at low cost. There are a few caveats that some traders will need to take notice of, however. Here’s the lowdown:

Insurance and Regulatory Framework

TradeZero is headquartered in the Bahamas and regulated by the Securities Commission of that country. It is not a member of FINRA, the SEC, or SIPC. Although it’s not a part of SIPC, TradeZero accounts are insured.

The broker-dealer has policies with Lloyds of London and Bahamas First General. The latter group has a rating of A- (considered excellent) from A.M. Best.

Available Services

  • ETF’s
  • Stocks
  • Warrants
  • Options

This is a larger list than some offshore brokers offer. Capital Markets Elite Group, for example, only offers trading in stocks.

In addition to equity trading on the major American exchanges, TradeZero also provides access to the over-the-counter marketplace. Extended-hours trading (both pre-market and after-hours) is available; and so is day trading.

Day Trading at TradeZero

TradeZero provides many services that day traders need. These include margin, direct-access routing, Level II quotes, short locates, and a professional-level desktop platform.

Perhaps its biggest advantage in this area is the lack of pattern day trading (PDT) rules. Because the brokerage firm is not subject to SEC regulation, there is no $25,000 account minimum to day trade. The broker does impose a $500 account minimum for day-trading privileges.

Leverage

TradeZero allocates leverage based on account size:

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  • Accounts that have at least $2,500 in assets can day trade with 6:1 leverage.
  • Accounts with 6:1 leverage cannot have more than 75% of margin buying power in a single holding.
  • Accounts above $500 get 4:1 leverage.
  • There is no leverage below $500.

TradeZero prohibits accounts from holding more than 2:1 leverage at 3:55 pm, EST (5 minutes before the closing bell). The broker states that it reserves the right to cover or sell securities to bring leverage below this level.

Account Policies

There are a few policies that the most ambitious of traders may find unpleasant:

  • Equities priced under $1.00 can’t be shorted.
  • Equities below $3.00 are cash only.
  • Equities under $0.10 can’t be traded at all.
  • The broker will close any account that slips below $100.

Nationality Restrictions

Maybe the worst policy of all is TradeZero’s nationality policies. The brokerage firm will not accept applications from U.S. citizens or U.S. residents. When we tried to open an account, the United States was not a selectable country in the online application.

Oddly, TradeZero also doesn’t allow Bahamian citizens to open accounts.

TradeZero Pricing

As its name implies, TradeZero offers (some) equity orders commission-free. To qualify for the $0 price tag, an order must be an unmatched limit order. And the stock must trade at $1.00 or higher on the Nasdaq, AMEX, or NYSE.

Other orders cost $0.005 per share with a $0.99 minimum. Placing a trade with a live agent costs $20.

Short locates for hard-to-borrow shares incur fees. They are based on the difficulty to borrow the stock on that market day.

Option contracts carry a 99¢ base with a 79¢ per-contract charge. Assignments and exercises cost $35 each.

Deposits and withdrawals could get really expensive for non-Bahamian residents. An outgoing wire is $70, and the other direction costs $30.

On the plus side, there are no inactivity fees.

Software Fees

There are three software programs at TradeZero:

The broker-dealer charges an extra $25 per month to trade options on ZeroFree.

The broker also has a mobile app. Derivatives can’t be traded on it; and it lacks several important features, including Level II quotes and alerts.

Trading Tools

ZeroPro

TradeZero’s flagship trading platform is ZeroPro. The software has some really nice features. During our trial run of the program, we found the Level II window easy to use.

The platform’s order ticket lies within the Level II quote box. There are separate buttons for sell and short. There are also distinct buttons for buy and cover. All four are color-coded for faster and easier order entry.

During our testing of the trade ticket, we had no problem submitting orders quickly. Level II numbers are shown in shades of blue instead of multiple colors.

Options traders will really like the derivative trading window, which is separate from the Level II box. Another ticker symbol needs to be entered here, because the one entered in the Level II window doesn’t transfer.

With a ticker symbol, the window shows put and call prices along with volume and the current bid-ask spread. The software incorporates a direct-access routing menu. There are several time-in-force choices, including on-the-open and immediate or cancel.

What we didn’t like about the options window was the lack of multi-leg strategies. Calls and puts are it apparently.

Charting on ZeroPro comes with roughly 100 technical indicators. For example, we found:

  • Chaikin Money Flow
  • Ultimate Oscillator
  • r-Squared

A chart can be expanded the width of the monitor for easier analysis. Drawing tools are integrated as well. Examples include polygons, lines, and rectangles.

A right-click of the mouse on a chart generates a drop-down menu. Here, the background color of a graph can quickly be changed. Missing in this menu is a trade button.

A really nice tool on ZeroPro that we liked was a hi/low ticker box. Streaming in here is a list of stocks that are hitting 52-week highs and lows and intraday highs and lows.

A watchlist makes an appearance, and the entries can be quickly changed. Hot keys are integrated as well; and not to be missed is a short locate window.

One of the really nice features of ZeroPro is the ability to move windows around, add windows, and delete them. Multiple chart windows can be created with different timeframes. ZeroPro permits up to six Level II windows to be open at the same time.

ZeroWeb

One step below ZeroPro is ZeroWeb. As the name implies, the software operates through a web browser. It will work on any operating system. Some of the features include:

  • Advanced charting with tick-by-tick price action. There are drawing tools, technical indicators, and extended-hours price-action.
  • Level II window. Both Level I and II quotes are available. As on ZeroPro, Level II numbers are color-coded, and the platform’s trade ticket is integrated.
  • Hot Keys. It’s possible to use ZeroWeb without ever using the mouse.
  • On ZeroPro, up to 5 watchlists can be created. Each can have up to 30 ticker symbols, creating a total list of 150 securities. The watchlists are updated with real-time market data.

Other Platforms

Below ZeroWeb is ZeroFree. Although this one carries no monthly charge, a lot of advanced features are missing. These include OTCBB quotes, hot keys, Level II data, and options trading. They can all be added, but they come with monthly fees. Amazingly, a short feature is integrated in the software.

ZeroFree is able to function on tablets and phones and all operating systems. Charting comes with a few technical studies, multiple graph styles, and extended-hours price history.

The last piece of software TradeZero offers its customers is a mobile app. This one also has a short locate feature. Missing on the platform is options trading. During our investigation, we also didn’t find alerts or Level II data. Highlights include:

  • News articles
  • A watchlist
  • Trade ticket
  • Charting

Final Thoughts

A Bahamian broker (SureTrader) recently went out of business. This event was evidence that the Securities Commission of The Bahamas is on its toes and doing its job.

It was also a reminder of the difficulties of doing business with off-shore brokers.

Keep in mind that US residents cannot open an account with their offshore branch, but are welcome to open one with TradeZero America. The PDT rule will apply with TradeZero America.

Bottom Line

TradeZero is worth a shot if you have less than $25,000 in assets but want to day trade inside a brokerage account with insurance.

Broker Rebate Program

Click on the image below to see how you can save on your Warrior Trading education through the special rebate program we’ve started with TradeZero!

As always if you have any questions or comments regarding Trade Zero, please leave us a message below!

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12 Comments

Jacob

Why does it say in the FAQ’s that US citizens cannot open an account

Steve

Do you know if Trade Zero would have trade execution speed equal to Suretrader or Speedtrader? Thanks for the review!

Paul Zeymer

Ive been with them for 2 months and its true, free orders when its a limit order not to be executed too fast as it would count as market order I guess cause part of the money they make is from rebates from EDGX adding liquidity (limit order) … mostly Im entering positions on a market order (0.005 per share) and getting out on a limit order which I place at resistence (free) thats my strategy for now at least … so I pay 0.005 one way and FREE the way out, so its like Im paying 0.0025 round trade … platform is simple but cheap and with this free structure on limit ..Im not a big fan of the platform but for now TradeZero is my best option for sure .ps I hold a Canadian passport so I could open an acc with them .. Americans with 2 passports could do it too

Paul Zeymer

…and yes SureTrader is also in an island offshore and so many people use them so I decided to try TradeZero … I think SureTrader can accept Americans cause theyre using some loophole in the law that TradeZero decided not to use …the only explanation I see

Richard I

I switched from Suretrader to Trade Zero for lower cost commissions and lower cost Lvl 2 feed costs. If anything, I am perceiving the trade executions are faster with Trade Zero. PROs: Personally, I find Trade Zero Pro desktop has great Level 2, Time and Sales and speed/reliability of trade executions. Hotkey features are modest, but have the essentials and work good. The News feed is good too. CONs: Charts are basic compared to other trading platforms. It’s challenging to know if shares are available to short or have leverage limitations. Compared to Suretrader Pro (DAS Trader), the TZ Pro platform is very basic and not as developed, but works very well.

Randy Copp

Not for US citizens
is USA an opotion for Country?
Unfortunately no, sorry. We require a foreign ID and a foreign PROOF of address.
they can’t be American you can still use a US bank to deposit however.

Rahul karan

This review seem to be legit. But i have some doubts like do they have shorts available compared to sure trader. I mean ETB like suretrader?

Charlie

Very Very basic hotkeys. They don’t have a hot key for stop-loss based on price paid or stop-loss based on average price paid. Just bid ask ‘current’ and ‘last’. So you have to be creative and extra careful on volatile stocks.

Jonh

Trade Zero fees for wires are ridiculous. Their web platform is slow, limited and suffer frequent outtages, They don’t offer market data for all OTCSs. Most Stocks cannot be shorted. Prefer to stay under PDT rules with US Brokers anyday than trade with them again

Chris

I have been with TradeZero for over a year. Customer service from TradeZero should be 1/5. While they are always available and you usually have someone to help you within seconds… they are ZERO help. The platform is slow and plagued with bugs (VWAP calculations for example). The VWAP can be listed on the 3 min chart, 10 min chart, and in the level 2/ time & sales and all 3 will be different. I have screenshots of the VWAP being off by over a full $1! That is insane, and it has been like that for over 2 months. I am leaving this week and I would recommend everyone else avoid them at all costs. I am happy to pay a bit more for a broker that I can trust.
$75 fee for wire transfers out of TradeZero….. case and point.

Ali Haider

I just opened account in trade zero. It’s going good. Wire transfer was very difficult. It takes for me 20 days almost. Secondly suretrader now closed, so I dont know what will happen with tradezero in future. So offshore brokers you cant rely on them now.

Mohit

Does anyone know if Trade Zero restricts margin like Sure TRader used to, on volatile stocks ?

Leave a Reply Cancel

Testimonials

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After 3 years of trading as a student my portfolio has net more than $230k. For year 2020, in less than 6 months I’ve net more than 140k. With Warrior Trading’s mentorship and my investment knowledge prior to coming on-board, I developed my own short term swing trading strategy.

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If you do not agree with any term of provision of our Terms and Conditions you should not use our Site, Services, Content or Information. Please be advised that your continued use of the Site, Services, Content, or Information provided shall indicate your consent and agreement to our Terms and Conditions.

Warrior Trading may publish testimonials or descriptions of past performance but these results are NOT typical, are not indicative of future results or performance, and are not intended to be a representation, warranty or guarantee that similar results will be obtained by you.

Ross Cameron’s experience with trading is not typical, nor is the experience of students featured in testimonials. They are experienced traders. Becoming an experienced trader takes hard work, dedication and a significant amount of time.

Your results may differ materially from those expressed or utilized by Warrior Trading due to a number of factors. We do not track the typical results of our current or past students. As a provider of educational courses, we do not have access to the personal trading accounts or brokerage statements of our customers.

Available research data suggests that most day traders are NOT profitable.

In a research paper published in 2020 titled “Do Day Traders Rationally Learn About Their Ability?”, professors from the University of California studied 3.7 billion trades from the Taiwan Stock Exchange between 1992-2006 and found that only 9.81% of day trading volume was generated by predictably profitable traders and that these predictably profitable traders constitute less than 3% of all day traders on an average day.

In a 2005 article published in the Journal of Applied Finance titled “The Profitability of Active Stock Traders” professors at the University of Oxford and the University College Dublin found that out of 1,146 brokerage accounts day trading the U.S. markets between March 8, 2000 and June 13, 2000, only 50% were profitable with an average net profit of $16,619.

In a 2003 article published in the Financial Analysts Journal titled “The Profitability of Day Traders”, professors at the University of Texas found that out of 334 brokerage accounts day trading the U.S. markets between February 1998 and October 1999, only 35% were profitable and only 14% generated profits in excess of than $10,000.

The range of results in these three studies exemplify the challenge of determining a definitive success rate for day traders. At a minimum, these studies indicate at least 50% of aspiring day traders will not be profitable. This reiterates that consistently making money trading stocks is not easy. Day Trading is a high risk activity and can result in the loss of your entire investment. Any trade or investment is at your own risk.

Any and all information discussed is for educational and informational purposes only and should not be considered tax, legal or investment advice. A referral to a stock or commodity is not an indication to buy or sell that stock or commodity.

This does not represent our full Disclaimer. Please read our complete disclaimer.

Citations for Disclaimer

Barber, Brad & Lee, Yong-Ill & Liu, Yu-Jane & Odean, Terrance. (2020). Do Day Traders Rationally Learn About Their Ability?. SSRN Electronic Journal. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2535636

Garvey, Ryan and Murphy, Anthony, The Profitability of Active Stock Traders. Journal of Applied Finance , Vol. 15, No. 2, Fall/Winter 2005. Available at SSRN: https://ssrn.com/abstract=908615

Douglas J. Jordan & J. David Diltz (2003) The Profitability of Day Traders, Financial Analysts Journal, 59:6, 85-94, DOI: https://www.tandfonline.com/doi/abs/10.2469/faj.v59.n6.2578

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TRADEZERO REVIEW

Let’s dive in with this TradeZero review. Looking for a way to get around that pesky PDT rule if you’re outside the USA? Want to save some coin in commission fees? Well today you’re in luck, we’re doing a review of this popular broker. As a result, this just might be the broker you’re looking for. Brokers are such an important part of trading because it’s the hub in which everything happens. Therefore, you want to make sure you pick the broker that best suits your trading style. Read more below to get the scoop.

Is TradeZero Legit?

  • Trade Zero is a legit online discount brokerage firm offering commission free stock trading, free limit order trades, no PDT rule (as long as you are not a US resident, more info on that below), high day trading leverage and state-of-the-art trading software. In fact, they are attractive to active traders looking to keep costs down.

Can Us Citizens Use TradeZero?

  • US Citizens cannot use Tradezero.co which is based in the Bahamas. You CAN use TradeZero America Inc, which is based in the US, and is the US compliance version of trade zero. Kinda confusing, but just know that there are TWO separate entities. If you’re outside the US, use the former, if you are inside the US, use the latter. For US citizens, there are other options for PDT avoidance.
  • Even if you find your way around the PDT rule, you still need to know the right ways to trade. And not over-trade! (Don’t worry, we’ll teach you in our free courses!) Some of the benefits of using trade zero are:

Is TradeZero a Good Broker?

  • Tradezero is a good broker because it offers zero commissions, high leverage, and customized trading software powered by DAS TRADER.

That,s right, TradeZero is one of the early brokers who made their claim to fame with 100% free limit orders. Of course, like anything in life, conditions apply.

Just as long as the limit order is over 200 shares and doesn’t create an immediate match, the trade is free. Keep in mind the symbol must cost more than $1 and trade on the NYSE, AMEX or NASDAQ to be eligible.

No free OTC or Pink Sheets orders, but that is pretty commonplace pracctice, even when comparing them to other free commission brokers.

That being said, you pay a .99 cent flat fee when buying less than 200 shares. Click HERE to see how the updated pricing works

What does “unmatched” mean? Well, it means you as the trader must provide liquidity. You do this by selling or shorting on the inside ask/offer or buying/covering on the inside bid.

1. High Day Trading Leverage

We have to give a shout out to offshore brokers and their ability to offer high day trading leverage. This can be a catch 22, so consider yourself warned.

Margin is a loan extended by your broker that allows you to leverage the funds and securities in your account to enter larger trades. You can get in over your head trading on margin, and we don’t want you getting carried away with that.

So, what does this mean for you? Well, margin is based on account size. If you have less than $1000 cash in your account you get zero margin. Cash accounts just under $2,500 receive 4:1 leverage.

Now this is where things get interesting, once you have over $2,500 in your account, leverage goes up to 6:1. In laymen terms, with a $5,000 account you can trade $30,000 worth of equities.

However, larger trades means larger risk and you don’t want to be gambling. Check out our article on risk management so you don’t blow up your account. Learn stock training before trading on margin.

How Does TradeZero Make Money?

  • Tradezero makes money a few different ways. The obvious ways are selling access to their ZeroPro and ZeroWeb platforms which are powered by DAS TRADER. Another way is they are paid for assisting with market order flow by other brokers. Lastly, they earn income on providing margin to traders.
  • Zero Pro which is their desktop software, is $79 per month with level 2 data. Zero Web, the web based platform is $59 per month. If you like to trade while you wait for appointments, their Zero Mobile platform is free!
  • In fact, if you trade high volumes your monthly fees are waived! Winning! Check out our best brokerage firms page to review other brokers before you make a decision.

An inside look of the ZeroPro platform.

TradeZero Review on the Pro Platform

  • Looking for a stand-alone program with precision control and depth? Look no farther than the ZeroPro platform. It provides all the bells and whistles needed for trading. This platform has advanced charting, direct order routing with short-locate request buttons, conditional orders, and options trading just to name a few.

1. Zero Web Platform

Users of ZeroWeb have direct market access complete with level 2 data and hot keys. In fact, all of these features are mission critical for the active trader.

Since ZeroWeb trading is a browser based platform, it will run on any connected device. All windows update dynamically tick-for-tick and in real-time. As a result, windows can be linked with one another and the layout is totally customizable.

The ZeroWeb Level 2 window includes all market depth, Level 1 information and streaming time and sales. Orders can be placed by pointing or clicking or using advanced hot keys. Check out a list of the top trading companies .

2. TradeZero Review on Mobile Trading

Access your trading account wherever using your iPhone or Android mobile. Trade and locate stocks in real-time when you’re on the move.

View real-time streaming quotes, access account portfolio, charts, locate hard to borrow stock, check open orders and execution history.

The mobile platform links to THE Pro and web platform. Orders that are sent update dynamically in all platforms (watch us do stock trading live each day in our trading rooms).

3. Borrows & Locates

For hard to borrow stocks (for example, low float stocks) – They are exceptional! Short-sellers take a deep breath, TradeZero has short-seller access to 14,000 symbols. Yes, I said it, 14,000. Thank the lack of SEC regulations for that.

For those of you who love to short like me, it’s a traders dream. Cost wise it will set you back about $0.03 on those hard to borrow intraday shorts. Looking to hold overnight? It’s 7x/share cost for the first night and 1x/share cost thereafter.

They have shorts on virtually any hard to borrow stock you can imagine, and of course, you do have a pay a premium to locate these shares (as you would with any other broker).

4. How Is the Execution?

Because TradeZero offers US market access and clears through a US clearing firm, Trade Zero is subject to Reg NMS. This means firms are obligated to provide investors with executions at the best possible price.

As long as you are trading high volume mid caps and large caps, you shouldn’t have a problem. Trading low float stocks will always bring execution issues no matter what broker you are using.

5.TradeZero Review on Hot Keys

Knowing how to use hot keys is vital to success for day traders. The split-second order execution ability determines if you’re eating Filet Mignon for supper or ground beef.

In my opinion, the hot keys are the same caliber as Sterling Trader Pro and DAS Pro, both leaders in their field.

Not sure how to use hot keys? Check out our great video here on how they can be used.

Here is the Zero Free Platform which works on all devices, ZeroFree is a browser based platform that will run on most devices, but like most of these platforms, works best on google chrome. Features you can expect with this are good. Direct hard to borrow locating, Hot-keys, Level 2, Custom Watch lists, and fairly decent charting to name a few This is a great platform for newbies to start with.

TradeZero Minimum Deposit

  • Minimum deposit is $500 for a cash account. That means no margin for you.
  • Accounts with $500 to $2499 will give you access to 4 to 1 leverage.
  • Now if you have $2500+ you are getting access to 6 to 1 leverage.

TradeZero Review & What’s the Downside?

  • Unfortunately, U.S. residents without citizenship in another country will have their application rejected, unless they go specifically for the US version of tradezero.

Also, there’s always a tad more risk with your money being offshore. However, according to their website, TradeZero has insurance through Bahamas First General and Lloyds of London.

In fact, they have an A, excellent rating (find out how to invest in stocks for beginners with little money). That’s a good peace of mind to have if you plan on opening an account. We also respect them for creating a US version and a global version. we think that shows they are trying to do the right thing.

Admiral Markets Group consists of the following firms:

Admiral Markets Cyprus Ltd

Admiral Markets Pty Ltd

Admiral Markets UK Ltd

Reading time: 20 minutes

Forex risk management is one of the most debated topics in trading. On one hand, traders want to reduce the size of their potential losses, but on the other hand, traders also want to benefit by getting the most potential profit out of each trade. And there’s a common belief that in order to gain the highest returns, you need to take greater risks.

The reason many traders lose money in Forex isn’t simply inexperience – it’s poor risk management. Due to its volatility, the Forex market is inherently risky. Risk management in Forex is therefore a non-negotiable success factor for both beginners and experienced traders alike.

This is where the question of proper risk management arises. In this article, we will discuss Forex risk management and how to manage Forex risk when trading, including our top 10 risk management tips. This can help you to avoid losses, make more profits, and have a lower-stress trading experience.

The first step to Forex risk management – understanding Forex risk

The Forex market is one of the biggest financial markets on the planet, with everyday transactions totalling more than 5.1 trillion US dollars. Banks, financial establishments, and individual investors therefore have the potential to make huge profits and losses.

Forex trading risk is simply the potential risk of loss that may occur when trading. These risks might include:

  • Market risk: This is the risk of the financial market performing differently to how you expect, and is the most common risk in Forex trading. If you believe the US dollar will increase against the Euro and you buy the EURUSD currency pair only for it to fall, you will lose money.
  • Leverage risk: Because most Forex traders use leverage to open trades that are much larger than the size of their deposit, in some cases it’s even possible to lose more money than you initially deposited.
  • Interest rate risk: An economy’s interest rate can have an impact on the value of that economy’s currency, which means traders can be at risk of unexpected interest rate changes.
  • Liquidity risk: Some currencies are more liquid than others. This means there’s more supply and demand for them, and trades can be executed very quickly. For currencies where there is less demand, there might be a delay between you opening or closing a trade in your trading platform, and that trade being executed. This might mean that the trade isn’t executed at the expected price, and you make a smaller profit (or even lose money) as a result.
  • Risk of ruin: This is the risk of you running out of capital to execute trades. Just imagine that you have a long-term strategy for how you think a currency’s value will change, but it moves in the opposite direction. You need enough capital on your account to withstand that move until the currency moves in the direction you want. If you don’t have enough capital, your trade could be closed out automatically and you lose everything you’ve invested in that trade, even if the currency later moves in the direction you expected.

As you can see, there are a number of risks that come with Forex trading! For this reason, the topic of managing your Forex risk is very important. This is why we’ve put together our top 10 Forex risk management tips in this article.

10 Forex risk management tips

Here are our top 10 Forex risk management tips, which will help you reduce your Forex risk regardless of whether you’re a new trader or a pro:

  1. Educate yourself about Forex risk and trading
  2. Control your risk with a stop loss
  3. Don’t risk more than you can afford to lose
  4. Limit your use of leverage
  5. Have realistic profit expectations
  6. Use take profits to secure profits
  7. Have a Forex trading plan
  8. Prepare for the worst
  9. Manage Forex risk by managing your emotions
  10. Diversify your Forex portfolio

Tip 1. Educate yourself about Forex risk and trading

If you are just starting out, you will need to educate yourself. One attitude that will help is to approach Forex trading just as you would with any career, because that’s what it is.

The good news is that there are a wide range of educational resources that can help, including Forex articles, videos and webinars. And when you’re ready to start putting your new knowledge to the test, you can trade Forex using virtual funds in a free demo trading account.

A free demo account allows you to trade the markets risk free. This allows you to understand the trading platform, how the Forex market works and test different trading strategies.

Simply click the banner below to sign up for your free demo account today!

Tip 2. Manage your Forex risk with a stop loss

A stop loss is a tool to protect your trades from unexpected shifts in the market. Simply, it is a predefined price at which your trade will automatically close. So if you open a trade in the hope that an asset will increase in value, and it decreases, when the asset hits your stop loss price, the trade will close and it will prevent further losses. (Just note that stop losses aren’t a guarantee – there can be cases where there are gaps in prices when an asset won’t hit the stop loss, meaning the trade doesn’t close.)

Trading without a stop loss is like driving a car with no brake at top speed – it’s not going to end well.

A good rule of thumb is to set your stop loss at a level that means you will lose no more than 2% of your trading balance for any given trade. Let’s say you have a trading balance of $20,000. Your stop loss should be about 40 pips for a trade, so that if the trade goes against you, all you lose at your stop loss will be $80.

Once you’ve set your stop loss, you should never increase the loss margin. There’s no point having a safety net in place if you aren’t going to use it properly.

There are different types of stops in Forex. How you place your stop loss will depend on your personality and experience. Common types of stops include:

If you find you are always losing with a stop-loss, analyse your stops and see how many of them were actually useful. It might simply be time to adjust your levels to get better trading results.

In addition, a protective stop can help you lock in profits before the market turns. For example, once you have opened a position and have a floating profit of $500, you can move your stop loss closer to the current price, so that if it was hit, your trade would close with a profit of $400. If the trade keeps going your way, you can continue trailing the stop after the price. One automated way to do this is with trailing stops.

To learn how to set stop losses and take profits in MetaTrader 5, watch the video below:

Tip 3. Don’t risk more than you can afford to lose

One of the fundamental rules of risk management in the Forex market is that you should never risk more than you can afford to lose. That being said, this mistake is extremely common, especially among Forex traders just starting out. The Forex market is highly unpredictable, so traders who are willing to put in more than they can actually afford make themselves very vulnerable to Forex risks.

If a small sequence of losses would be enough to eradicate most of your trading capital, it suggests that each trade is taking on too much risk.

The process of covering lost Forex capital is difficult, as you have to make back a greater percentage of your trading account to cover what you lost. Imagine having a trading account of $5,000, and you lose $1,000. The percentage loss is 20%. To cover that loss, however, you need to get a profit of 25% with the same amount (as you only have $4,000 left on your account, a $1,000 profit is 25% of your new account balance). This is why you should calculate the risk involved in Forex trading before you start trading. If the chances of profit are lower in comparison to the profit to gain, stop trading. You may want to use a trading calculator to measure the risks more effectively.

A tried and tested rule is to not risk more than 2% of your account balance per trade. As mentioned earlier, for a $20,000 trading account that would be just $80. In addition, many traders adjust their position size to reflect the volatility of the pair they are trading. With that in mind, a more volatile currency demands a smaller position compared to a less volatile pair.

At some point, you may suffer a bad loss or a burn through a substantial portion of your trading capital. There is a temptation after a big loss to try and get your investment back with the next trade. But here’s a problem – increasing your risk when your account balance is already low is the worst time to do it. Instead, consider reducing your trading size in a losing streak, or taking a break until you can identify a high-probability trade. Always stay on an even keel, both emotionally and in terms of your position sizes.

To learn more about trading through a losing streak, check out the free webinar below with professional trader Jens Klatt:

Tip 4. Manage Forex risk by limiting your use of leverage

Linked to the previous Forex risk management tip is limiting your use of leverage.

Leverage, in a nutshell, offers you the opportunity to magnify profits made from your trading account, but it also increases the potential for risk.For example: leverage of 1:200 on a $400 account means that you can place a trade for up $80,000 ($400 x 200). On the other hand, applying leverage of 1:500 means that you can trade up to $200,000 ($400 x 500).

This then means that should your trade move in your favour, you are experiencing the full impact of the movement of that $80,000 (or $200,000) trade, even though you only invested $400. While this can mean large profits when the market moves in your favour, the risks are just as high.

Your level of exposure to risk is therefore higher with a higher leverage. If you are a beginner, avoid high leverage. Consider only using leverage when you have a clear understanding of the potential losses. If you do, you will not suffer major losses to your portfolio – and you can avoid being on the wrong side of the market.

Admiral Markets offers different leverages according to trader status. Traders come under two categories: retail traders and professional traders. Admiral Markets offers leverage of 1:30 for retail traders, and leverage of 1:500 for professional traders.There are benefits and trade offs to both, and you can find out what is available to you with our retail and professional terms.

Forex risk management is not hard to understand. The tricky part is having enough self-discipline to abide by these risk management rules when the market moves against a position.

Tip 5. Have realistic profit expectations to manage risk

One of the reasons that new traders are overly aggressive is because their expectations are not realistic. They may think that aggressive trading will help them make a return on their investment more quickly. However, the best traders make steady returns. Setting realistic goals and maintaining a conservative approach is the right way to start trading.

Being realistic goes hand in hand with admitting when you are wrong. It’s essential to exit quickly when there’s clear evidence that you have made a bad trade. It’s a natural human tendency to try and turn a bad situation into a good situation, but it’s a mistake in FX trading.

With this mindset, you can prevent greed from coming into the equation. Greed can lead you to make poor trading decisions. Trading is not about opening a winning trade every minute or so, it is about opening the right trades at the right time – and closing such trades prematurely if they proved to be wrong. Always try to maintain discipline and follow these Forex risk management strategies. This way, you will be in the best position to improve your trading.

Tip 6. Manage Forex risk with take profits

Once you have clear expectations, one way to secure your profits is by using a take profit. This is a similar tool to a stop loss, but with the opposite purpose – while a stop loss is designed to automatically close trades to prevent further losses, a take profit is designed to automatically close trades when they hit a certain profit level.

By having clear expectations for each trade, not only can you set a profit target (and a take profit), but you can also decide what an appropriate level of risk is for the trade. Most trades would aim for at least a 2:1 reward-to-risk ratio, where the expected reward (or profit) is twice the risk they are willing to take on a trade.

You would set your take profit at your target profit level (let’s say, 40 pips), and your stop loss would be half that distance from the opening price of your trade (in this case, 20 pips).

In short, think about what levels you are aiming for on the upside, and what level of loss is sensible to withstand on the downside. Doing so will help you to maintain your discipline in the heat of the trade. It will also encourage you to think in terms of risk versus reward.

Tip 7: Have a Forex trading plan for better risk management

One of the big mistakes new traders make is signing into the trading platform and then making a trade based on instinct, or what they heard in the news that day. While this might lead to a couple of lucky trades, that’s all they are – luck.

To properly manage your Forex risk, you need a trading plan that outlines:

  • When you will open a trade
  • When you will close it
  • Your minimum reward-to-risk ratio
  • The percentage of your account you are willing to risk per trade
  • And more

Have a Forex trading plan and stick to it in all situations. A trading plan will help keep your emotions in check and will also prevent you from over trading. With a plan, your entry and exit strategies are clearly defined – and you know when to take your gains or cut your losses without becoming fearful or greedy. This brings discipline into your trading, which is essential for successful Forex risk management.

It stands to reason that the success or failure of any trading system will be determined by its performance in the long term. So be wary of apportioning too much importance to the success or failure of your current trade. Do not bend or ignore the rules of your system to make your current trade work.

One of the best ways to create a trading plan is to learn from the experts. Did you know you can do this for free with our weekly webinars? Click the banner below to find out more and register!

Tip 8. Manage risk by being prepared for the worst

No one can predict the Forex market, but we do have plenty of evidence from the past of how the markets react in certain situations. What has happened before may not be repeated, but it does show what is possible. Therefore, it’s important to look at the history of the currency pair you are trading. Think about what action you would need to take to protect yourself if a bad scenario were to happen again.

Don’t underestimate the chances of unexpected price movements occurring – you should have a plan for such a scenario. You don’t have to delve far into the past to find examples of price shocks. For instance, in January 2020 the Swiss Franc surged roughly 30% against the Euro in a matter of minutes.

Tip 9. Manage Forex risk by managing your emotions

Forex traders need to have the ability to control their emotions. If you cannot control your emotions, you won’t be able to reach a position where you can achieve the profits you want from trading.

Why? Because emotional traders struggle to stick to trading rules and strategies. Traders who are overly stubborn may not exit losing trades quickly enough, because they expect the market to turn in their favour.

When a trader realises their mistake, they need to leave the market, taking the smallest loss possible. Waiting too long may cause the trader to end up losing substantial capital. Once out, traders need to be patient and re-enter the market when a genuine opportunity presents itself.

Or traders who are emotional following a loss might make larger trades trying to recoup their losses, but increase their risk as a result. The opposite can happen when a trader has a winning streak – they might get cocky and stop following proper Forex risk management strategies.

Ultimately, don’t become stressed in the trading process. The best Forex risk management strategies rely on traders avoiding stress, and instead being comfortable with the amount of capital invested.

Tip 10. Diversify your Forex portfolio to manage risk

A classic risk management rule is not to put all your eggs in one basket, and Forex is no exception. By having a diverse range of investments, you protect yourself in cases where one market might drop – the drop will be compensated for by other markets that are experiencing stronger performance.

With this in mind, you can manage your Forex risk by ensuring that Forex is a portion of your portfolio, but not all of it. Another way you can expand is to exchange more than one money pair.

Bonus risk management tip for frequent Forex traders

If you trade frequently, there’s another tool you can use for managing your Forex risk.

One of the main ways of measuring and managing your risk exposure is by looking at the correlation of your FX trades. In stocks there is a common index known as ‘beta’, which shows how the stock is expected to perform depending on changes within the industry. Generally, when trading stocks and aiming to reduce risk, a trader would usually attempt to combine the stocks that would result in a compounded beta that equals zero – as some stocks have positive beta, and others have negative.

What is Forex correlation, and how can it help with risk management?

There is no beta in Forex trading, but there is correlation. The correlation shows us how changes within one currency pair are reflected in the changes within another currency pair. Generally speaking, if you are trading closely correlated currencies (such as EUR/USD and AUD/JPY), you may expect them to have a common trend. In other words, whenever EUR/USD goes down, you could also expect to see a downward trend in AUD/JPY.

So how can this help to measure Forex risk exposure? We all know that risk is mainly driven by margin. This is why you should mainly trade the pairs that don’t have strong positive or negative correlations, as you will simply waste your margin on the pairs that result in the same, or the opposite direction. As a rule, currency correlation is also different on various time frames. This is why you should look for an exact correlation on the time frame you are actually using.

You can manage your Forex risks much better when paying closer attention to the currency correlation, especially when it comes to Forex scalping. Whenever you are engaging a scalping strategy, you have to maximise your gains over a short period of time. This can only be achieved by not trapping your margins in the opposite-correlated assets. Managing your risk is vital if you want to succeed as a Forex trader. This is why you should adhere to the aforementioned principles of Forex risk management.

The question is, how can you measure the correlation of different currency pairs? This is simple with the free, MetaTrader Supreme Edition add-on for MetaTrader 4 and 5.

To access this, you’ll need to:

Then, when you open MetaTrader on your computer and sign into your trading account, the feature will be available automatically! Simply:

  1. Go to the Navigator window (by default this appears in the bottom-left corner of the screen)
  2. Click Expert Advisors
  3. Click Admiral – Correlation Matrix
  4. Click OK to open the matrix

Source: Admiral Markets MT5 Correlation Matrix

Then you will be able to see how different currency pairs correlate!

Forex risk management tips conclusion

Like all aspects of trading, what works best will vary according to your preferences as a trader. Some traders are willing to tolerate more risk than others. However, in most cases, these 10 tips can help you manage, and reduce, your trading risk:

  1. Educate yourself about Forex
  2. Trade with a stop loss
  3. Don’t risk more than you can afford to lose
  4. Limit your use of leverage
  5. Have realistic profit expectations
  6. Use take profits
  7. Have a Forex trading plan
  8. Prepare for the worst
  9. Manage Forex risk by managing your emotions
  10. Diversify your Forex portfolio

If you are a beginner trader, then no matter who you are, the best tip to reduce your risk is to start conservatively. We recommend practising new strategies, in a risk-free environment, with a free demo trading account.

Fortunately, you can start demo trading today with Admiral Markets! With our risk-free demo trading account, professional traders can test their strategies and perfect them without risking their money.

A demo account is the perfect place for a beginner trader to get comfortable with trading, or for seasoned traders to practice. Whatever the purpose may be, a demo account is a necessity for the modern trader. Open your FREE demo trading account today by clicking the banner below!

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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