Before making their first FX trade, every trader needs to understand how much capital they have, as well as the specific leverage available to them for their chosen currency pair. Since leverage in forex trading can be as high as 50:1, it is critical to understand how much capital you will have at risk on any trade. The 1% rule for how much capital to risk on an individual trade is a good rule of thumb for new forex traders. This means you should only risk 1% or your total account value on a particular trade. Other traders may choose to use a 2% or even 5% rule for the amount of capital they will allocate to any particular trade.
The amount you are willing to risk along with how far you are willing to let the market move against your position before taking a loss sets the parameters of the trade. You should also set a take profit point if you intend to systemize your trading, but with the downside risk contained, you always have the option of letting winning positions run. Once the trade parameters have been determined, you are ready to enter the order through your broker’s trading platform.