Money Management on Forex


 Professional traders contend that success in trading largely depends on whether a trader knows what the effective forex money management is about.  The rules of money management on forex are the basis of a trader’s work, once a trader wants to work successfully. Currency market won’t tolerate disregard of forex money management rules. Failure in following the rules leads to failure in trading.

Although it is often the case and is one of the most common mistakes of the ambitious beginners who have set themselves up to conquer the market. Despite of their zero experience they are consumed with desire to win it all at once. A trader committed to the ‘no risk no fun’ principle can never expect any profit. Forex itself is quite a risky business, and the market is not safe either;  those who want to trade securely should closely follow the money management rules.

Money management on the forex market is something that any trader has to comprehend right from the start of trading.

For better understanding of money management it is essential to have a clear understanding of a certain system, which consists of: investment amount; a sum to be invested into the deal; risk and loss level; profit-loss ratio.

Money management rules

Money management means effective funds’ administration, it has to be there

Trade with personal funds, start trading activity when you have confidence in yourself.

Invest half of the available amount

If you have $10,000 at your disposal, place 50% to a broker’s account. Thus you will save half of your funds in case you end in a fiasco. In order to choose a forex broker you can use ratings and reviews of forex brokers.

 When making a deal, try not to be greedy and don’t increase the volume more than 10 times

Putting substantial funds at risk is always dangerous. At the beginning of your trading activity use the minimal part of your account sum. Say,  if you have $1,000, the recommended volume is $10,000. Beware of a hundred-fold increase, because both spread and stop-loss damages increase correspondingly.

The optimal loss rate is 2% min, 5% max.

Monitor the loss rate

The optimal loss rate is 2% min, 5% max. When talking about this management area, we assume that after an inconvenient deal you should not lose more than 5%.  Stick to this figure when placing stop loss orders.

Profit and losses must be correlated

Take-profit should be set over stop-loss, the ideal ratio is 2:1. When you evaluate potential profits and losses, the profit should be two times higher than the loss. There are situations in which it is acceptable to have a 1.5:1 ratio, that is, potential loss is one and a half times lower than the anticipated profit. In case you decide in favor of some other ratio, it is likely that you will see a red-ink result when summarizing the trade.

Do not open too many deals at once, if you are just a beginner on the foreign exchange market

Operate in a simple but firm way: open a deal, set  stop-loss and take-profit, bring the deal into the black, close, and after that you can open the next deal.

Forex trading has nothing in common with a gambling house. Emotions are a big risk, which leads to losses.

Never attempt to recoup

Forex trading has nothing in common with a gambling house. Emotions are a big risk, which leads to losses.

Remember these rules and follow them at all times. If you want to optimize the risks, abide by the rules of money management. Probably you’ve heard of some traders who take risks ignoring these rules and reap huge profits; remember this is possible once, or twice, or, at most, three times. Doing so regularly inevitably leads to drain!

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