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The Forex Risk-Reward Ratio

forex-risk-ratio.jpgThe Forex trading require a trading plan that’s free of emotion and heavy on discipline like using proper money management risk-reward ratio. Only then can a trader’s hard earned money and valuable time translate into respectable profits.

Some investors don’t mind risking more than they can make on a deal. Is this real good advice to follow though? If you’re a real risk taker, then take the chance. But if you’re in the market to make a real profit over the long run, then don’t do it. It is just not sound risk management planning.

The risk-reward ratio is basically the risk you’re willing to take to make a certain profit. Any risk management plan that’s worth its money has a decent risk-reward ratio of at least 1:2. What exactly does a 1:2 ratio mean? It means that for every unit of risk you take, you’ll reap double amount in reward.

With 1:3 ratio means that for every unit of risk you take, you’ll earn three times that amount. The larger the ratio is, the greater reward you make. However, with higher risk-ratios, you’ll have to wait longer to make that trade. You might end up missing some lucrative trades in the interim, and your trade might never show up.

 

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