MONEY MANAGEMENT:
Forex money management is something that many people are guilty of overlooking in their trading. Whether it is through lack of awareness or idleness, traders who ignore money management in Forex do so to their detriment. In fact, good money management is one of the factors that often distinguishes a successful trader from an unsuccessful one.
But what is it exactly? Why is it so important? And how can you make sure you use it in your trading? In this article, we will provide answers to all these questions and more.
What Is Forex Money Management:
Simply put, Forex money management is a set of self-imposed rules successful traders follow in order to manage their money effectively; minimising losses, maximising profits and growing the size of their trading account.
Forex money management is often, and understandably, confused with risk management, as they are fairly similar concepts. Risk management is more about identifying, analysing and quantifying all the risks associated with trading in order to manage them effectively and, in doing so, protect yourself from the downsides of trading. Money management just focuses on protecting your money.
An old trading adage helps to sum up the purpose of money management "cut your losses short and let your winners run". In other words, minimise loss, maximise gains and hopefully, by doing so, become a successful, profitable Forex trader.
Tips For Successful Money Management in Forex:
We know that, especially as a new trader, there is a lot to take in and learn when it comes to the Forex markets. Therefore, in order to make things easier for you, we have compiled a list of our top tips in order to help you come up with a successful Forex money management plan.
Only Trade What You Can Afford to Lose:
Our first Forex money management tip, and probably the most important for any trader, is to only trade what you can afford to lose. As a beginner trader, you should only deposit what you can afford to trade with into your trading account and no more.
You might want to set yourself a maximum acceptable loss per month and if you hit that loss, stop trading immediately. The idea is that you are only risking capital that will not drastically change your life if you lose it. Do not ever trade with the money you need for essentials; rent, mortgage payments, food, travel to work, etc.
Forex trading is not a guaranteed money maker:
Some people will end their Forex trading career only having made losses. Do not risk what you cannot afford.
Quantify Your Risk per Trade:
Once you have decided on an amount of money you are happy to trade with, the next step in creating your Forex money management plan is to establish how much you are going to risk per trade and how you are going to measure this. This will help determine where you will place your stop loss each time you enter the market.
Forex money management is something that many people are guilty of overlooking in their trading. Whether it is through lack of awareness or idleness, traders who ignore money management in Forex do so to their detriment. In fact, good money management is one of the factors that often distinguishes a successful trader from an unsuccessful one.
But what is it exactly? Why is it so important? And how can you make sure you use it in your trading? In this article, we will provide answers to all these questions and more.
What Is Forex Money Management:
Simply put, Forex money management is a set of self-imposed rules successful traders follow in order to manage their money effectively; minimising losses, maximising profits and growing the size of their trading account.
Forex money management is often, and understandably, confused with risk management, as they are fairly similar concepts. Risk management is more about identifying, analysing and quantifying all the risks associated with trading in order to manage them effectively and, in doing so, protect yourself from the downsides of trading. Money management just focuses on protecting your money.
An old trading adage helps to sum up the purpose of money management "cut your losses short and let your winners run". In other words, minimise loss, maximise gains and hopefully, by doing so, become a successful, profitable Forex trader.
Tips For Successful Money Management in Forex:
We know that, especially as a new trader, there is a lot to take in and learn when it comes to the Forex markets. Therefore, in order to make things easier for you, we have compiled a list of our top tips in order to help you come up with a successful Forex money management plan.
Only Trade What You Can Afford to Lose:
Our first Forex money management tip, and probably the most important for any trader, is to only trade what you can afford to lose. As a beginner trader, you should only deposit what you can afford to trade with into your trading account and no more.
You might want to set yourself a maximum acceptable loss per month and if you hit that loss, stop trading immediately. The idea is that you are only risking capital that will not drastically change your life if you lose it. Do not ever trade with the money you need for essentials; rent, mortgage payments, food, travel to work, etc.
Forex trading is not a guaranteed money maker:
Some people will end their Forex trading career only having made losses. Do not risk what you cannot afford.
Quantify Your Risk per Trade:
Once you have decided on an amount of money you are happy to trade with, the next step in creating your Forex money management plan is to establish how much you are going to risk per trade and how you are going to measure this. This will help determine where you will place your stop loss each time you enter the market.
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