There are various ways in Forex to limit your exposure to risk and extreme market moves, foreign currency trading is speculative and prices can be highly volatile. It is not possible to foresee all risks in advance therefore there are ways to protect yourself against these extreme market movements.
Some strategies that are commonly used in the Forex market are called the stop or limit orders. These strategies are used to protect you from potential losses by letting you choose predetermined entry and exit points in the market where you would like to enter or exit positions automatically.
In addition your broker will normally control you risk expose by monitoring your margin position, on in other words your used and unused margin position. This is achieved by monitoring your used and usable margin.
Used margin is the amount of money you need to put down as a deposit to hold your trade. Therefore, if your account is set to 100:1 leverage, you will need to set aside 1% of your trade size as margin. Your usable margin is the amount of money left in your account that is available to open additional positions or to absorb any losses, and it fluctuates with your account’s Equity.
Used Margin and Usable Margin added together, equal your Equity.Also at certain levels your account will be automatically closed out if your margin levels drop to a certain percentage to stop your account going into negative equity.
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