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Forex Money Management Tips

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Old 13-01-2017, 12:08
Join Date: Mar 2014
Posts: 979
Default Forex Money Management Tips

The recent research shows that the majority of Forex traders lose their money. Most of them not only lose some of their accounts, they lose it all. The number one reason of ruining your trading account is money management. It is possible to state that the money management is the most important aspect in your trading career. You may have a losing strategy, but with a good money management, you lose very little of your account capital. During those loses you develop skills. The first rule of Forex trading is to survive and then focus on making returns. There are many methods to manage your money in the trading. We provide the most practical tips in this article. People mostly do not follow risk management rules, because they want to get rich quickly. Forex does not work this way. By risking a lot, you open doors for losing a lot too. Everyone has bad days and you need a bulletproof plan to protect your money when those days come.

% Risked
This is the most popular Forex money management among traders. It is easy to follow without much calculation. You risk specific % of your capital on a single trade. The industry standard is 2%, but you can risk the % which you feel most comfortable. However, we do not recommend risking more than 5%. For example, if you have trading capital of 10 000 USD and your risk is 2% that means when you execute a trade, your maximum loss cannot be more than 200$. This amount changes over time, whether your account size increases or decreases.

Amount Risked
This is a very practical and easy to use risk management method. You only risk specific amount of dollar on a pip. For example, you may buy 1 Lot EUR/USD. It means you risk 10$ on each pip. If your stop loss is 15 pips, your maximum loss could not exceed 150$. The question is how much can I risk using this method? It depends on your trading capital. The more you have more you risk. However, the risk should be reasonable. It has to be adapted with your stop loss and take profit levels.

Maximum Trades Taken
Overtrading is a very dangerous habit for traders. There are not a lot of opportunities on the market. I have seen people making 30-40 trades on a single day and 6-10 trades at the same time. You can do this if you are a scalper, but not good for a day-trader. Scalping is a very risky and needs advanced skills to succeed. Thus, it is not recommended for novice traders. However, if you are a day trader, always keep in mind that quality over quantity. If you make a lot of trades, you lose too, and it simply takes some of your profits. In the end, you do not make large returns because there are not many opportunities on the market. Less probability trades are not worth taking. Plus, you pay commission, which automatically increase your Forex trading costs. You can manage your risks by following maximum trade rules. For example, if you are a day-trader do not execute more than 10 trades on each day. The number of maximum trades depends on your trading style.

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