Money Management Forex Trading is too important in stock and Forex trading, No Forex trader wins every time. If there are profitable trades then there are losing trades also even for the expert traders and investors who have given many years of their life to this business. Avoiding of losing trades is not possible so the better is to think about how to ride through the losing trades also and this is what we call Forex money management. It is all about managing of position size. Money Management is a very general term so the concept of Money Management can be more specifically termed as asset location, portfolio allocation, portfolio heat, position sizing, cash flow management, capital management, trade management, position management, and lot size selection and bet size selection etc.
The two simple steps should be followed to implement Money Management properly are the Bet Size Determination and the Position Sizing. Bet Size Determination means determining of the size of each part of portfolio’s total that should be placed in a single trade from your Managed Forex Account. Position Sizing means the calculation of the number of contracts that a trader or investor should hold in his position. To become a successful trader, you must have good knowledge of Statistics. So a master of statistics, if he can control his emotions then he can become a very good Forex trader with in short time. Thus Forex Money Management is turning a losing system also into a profitable one and a mediocre system into a triple digit gains.
Not only the beginners pay less attention to the Money Management part but also some experienced traders underestimate this part. Money Management is the most important part of the strategy of any successful Forex trader. The traders and investors who totally ignore the part of Money Management soon finish up all their money in the losses. So below are some tips that can turn a beginner trader to an experienced and winner trader having winning ratio.
Money Management Forex Trading Is Use of Limited Leverage
This is the very first and important tip to the beginners as well as the experienced traders and investors. You may get 100:1 or also 400:1 of leverage ratio from some brokers. This means that with $100 in your account, you can open a position valuing $10,000 or $40,000 if the leverage ratio is 400:1. But then it is advisable not to use all the leverage that you get from the broker because if you do so and use the leverage of 100:1 and price of your opened position goes down by 1% then your $100 will turn to $0 that means all your money is lost. A good leverage that the traders should prefer is 10:1 – 20:1.
Wait for the right Forex trading opportunity
Profitable trading opportunities don’t come often so the traders and investors should be patient enough wait for the right opportunity to enter a trade using your Forex Managed Account. The beginner traders do not have that much patience and trade too much. This is the reason why the chances of beginners going in losses are more. There are successful traders who do not trade from their Forex Managed Account more than 20 times a year but they are able to manage triple digit gains annually.
Money Management Forex Trading Is Don’t trade without placing Stop Loss
Remember not to trade from your Forex Managed Account without placing stop loss. Stop loss is the primary and most important condition of Forex Trading so never forget to place stop loss. Stop loss is placed because if your prediction goes wrong and the price starts moving against you then stop loss defends you and save your money. If the price of the currency goes equal or below the stop loss then sale order is executed at the stop loss price and your money is saved. This way by placing stop loss you will be able to limit your loss. Trading without stop loss is like jumping from a helicopter without a parachute. A good way to place stop loss is to look for 40 days moving average and then watch the support or resistance level just below it.
Money Management Forex Trading Is Make your trading strategy for the worst case
The traders and investors should always make their trading strategy by assuming the worst case because anything worst is possible in the Forex Trading so the traders should assume the situation from where they will have only gains and no losses in real Forex account.