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ForexTools
07-04-2011, 12:45 AM
Forex Money Management

Money management is a critical point that shows difference between winners and losers. It was proved that if 100 traders start trading using a system with 60% winning odds, only 5 traders will be in profit at the end of the year. In spite of the 60% winning odds 95% of traders will lose because of their poor money management. Money management is the most significant part of any trading system. Most of traders don't understand how important it is.
It's important to understand the concept of money management and understand the difference between it and trading decisions. Money management represents the amount of money you are going to put on one trade and the risk your going to accept for this trade.
There are different money management strategies. They all aim at preserving your balance from high risk exposure.
First of all, you should understand the following term Core equity
Core equity = Starting balance - Amount in open positions.
If you have a balance of 10,000$ and you enter a trade with 1,000$ then your core equity is 9,000$. If you enter another 1,000$ trade,your core equity will be 8,000$
It's important to understand what's meant by core equity since your money management will depend on this equity.
We will explain here one model of money management that has proved high anual return and limited risk. The standard account that we will be discussing is 100,000$ account with 20:1 leverage . Anyway,you can adapt this strategy to fit smaller or bigger trading accounts.
Money management strategy
Your risk per a trade should never exceed 3% per trade. It's better to adjust your risk to 1% or 2%
We prefer a risk of 1% but if you are confident in your trading system then you can lever your risk up to 3%
1% risk of a 100,000$ account = 1,000$
You should adjust your stop loss so that you never lose more than 1,000$ per a single trade.
If you are a short term trader and you place your stop loss 50 pips below/above your entry point .
50 pips = 1,000$
1 pips = 20$
The size of your trade should be adjusted so that you risk 20$/pip. With 20:1 leverage,your trade size will be 200,000$
If the trade is stopped, you will lose 1,000$ which is 1% of your balance.
This trade will require 10,000$ = 10% of your balance.
If you are a long term trader and you place your stop loss 200 pips below/above your entry point.
200 pips = 1,000$
1 pip = 5$
The size of your trade should be adjusted so that you risk 5$/pip. With 20:1 leverage, your trade size will be 50,000$
If the trade is stopped, you will lose 1,000$ which is 1% of your balance.
This trade will require 2,500$ = 2.5% of your balance.
This's just an example. Your trading balance and leverage provided by your broker may differ from this formula. The most important is to stick to the 1% risk rule. Never risk too much in one trade. It's a fatal mistake when a trader lose 2 or 3 trades in a row, then he will be confident that his next trade will be winning and he may add more money to this trade. This's how you can blow up your account in a short time! A disciplined trader should never let his emotions and greed control his decisions.
Diversification
Trading one currnecy pair will generate few entry signals. It would be better to diversify your trades between several currencies. If you have 100,000$ balance and you have open position with 10,000$ then your core equity is 90,000$. If you want to enter a second position then you should calculate 1% risk of your core equity not of your starting balance!. Itmeans that the second trade risk should never be more than 900$. If you want to enter a 3rd position and your core equity is 80,000$ then the risk per 3rd trade should not exceed 800$
It's important that you diversify your prders between currencies that have low correlation.
For example, If you have long EUR/USD then you shouldn't long GBP/USD since they have high correlation. If you have long EUR/USD and GBP/USD positions and risking 3% per trade then your risk is 6% since the trades will tend to end in same direction.
If you want to trade both EUR/USD and GBP/USD and your standard position size from your money management is 10,000$ (1% risk rule) then you can trade 5,000$ EUR/USD and 5,000$ GBP/USD. In this way,you will be risking 0.5% on each position.
The Martingale and anti-martingale strategy
It's very important to understand these 2 strategies.
-Martingale rule = increasing your risk when losing !
This's a startegy adopted by gamblers which claims that you should increase the size of you trades when losing. It's applied in gambling in the following way Bet 10$,if you lose bet 20$,if you lose bet 40$,if you lose bet 80$,if you lose bet 160$..etc
This strategy assumes that after 4 or 5 losing trades,your chance to win is bigger so you should add more money to recover your loss! The truth is that the odds are same in spite of your previous loss! If you have 5 losses in a row ,still your odds for 6th bet 50:50! The same fatal mistake can be made by some novice traders. For example,if a trader started with a abalance of 10,000$ and after 4 losing trades (each is 1,000$) his balance is 6000$. The trader will think that he has higher chances of winning the 5th trade then he will increase ths size of his position 4 times to recover his loss. If he lose,his balance will be 2,000$!! He will never recover from 2,000$ to his startiing balance 10,000$. A disciplined trader should never use such gambling method unless he wants to lose his money in a short time.
-Anti-martingale rule = increase your risk when winning& decrease your risk when losing
It means that the trader should adjust the size of his positions according to his new gains or losses.
Example: Trader A starts with a balance of 10,000$. His standard trade size is 1,000$
After 6 months,his balance is 15,000$. He should adjust his trade size to 1,500$
Trader B starts with 10,000$.His standard trade size is 1,000$
After 6 months his balance is 8,000$. He should adjust his trade size to 800$
High return strategy
This strategy is for traders looking for higher return and still preserving their starting balance.
According to your money management rules,you should be risking 1% of you balance. If you start with 10,000$ and your trade size is 1,000$ (Risk 1%) After 1 year,your balance is 15,000$. Now you have your initial balance + 5,000$ profit. You can increase your potential profit by risking more from this profit while restricting your initial balance risk to 1%. For example,you can calcualte your trade in the following pattern:
1% risk 10,000$ (initial balance)+ 5% of 5,000$ (profit)
In this way,you will have more potential for higher returns and on the same time you are still risking 1% of your initial deposit.

hasnaink007
09-04-2012, 06:40 AM
I think if we can make money management then we can make us a different trader then others, and this is very nice to learn little lengthy but easy to understand

Raees
10-17-2012, 04:00 PM
i completely agree with your article a really helpful thread for newbies. The money management in Forex can be consider among the first requirements from the trader of the market. it is very important. people need to know how much of their money they are keen to risk per opening position.

jhoi
10-20-2012, 02:23 AM
i completely agree with your article a really helpful thread for newbies. The money management in Forex can be consider among the first requirements from the trader of the market. it is very important. people need to know how much of their money they are keen to risk per opening position.

Its very important to know the money management to know how you manage your money when is the right time to place your order, or to sell it. And this money management is not only for newbies its for all the traders who don't know how to manage their money and what is the importance of it.

israr_ali
10-20-2012, 06:24 AM
i will agree with u and i think that u will give a good information for me and other new traders in my point of view we have manage our money on your trading method and experience

UMOFX IB
04-16-2013, 04:34 AM
Money management is an important aspect of trading to which only few people pay attention. People are not aware of this when they start forex. After loosing money they came to know forex is only the name of open and close orders. Until they are not good in money and risk management traders can not be in profit so more.

noman9t9
07-04-2013, 06:09 PM
money menegment is the most important for the all forex trader so if you have 100$ but you can never take risk by taking 1 lot volume so be follow your money manegement

Master Forex IB
10-18-2013, 12:26 PM
Yes ithis is most important thing which protects trader's amount from unexpected resuts.With money management you will use your money with care thinking what steps are safe. As you will choose appropriate lot size and leverage your profit and loss targets will be realistic.

Umar Khalifa
12-07-2015, 11:25 AM
First of all, we the traders of course have to know what actually money management in Forex trading. And, no one becomes successful from this trading place at all, if he does not know how to manage money. By the way, I am very lucky to select Trade12 trading broker which is very supportive to their clients to make proper money management by providing most accurate successful trading tips with indispensable expressions and circumstances.

tuster
12-18-2015, 09:21 AM
For me, the basic rule of money management is not to exceed the risk rate per trade. The rest rules I rarely apply, at least for the year that I am trading with freshforex. And I want to note that my trade develops successfully.

Abu Boccor
12-24-2015, 07:57 AM
For acquiring all important information on the financial health of various economics, I am extremely dependable on Economic calendar. And, I am very lucky to select MXTrade as my trading platform which for all time provides me live economic calendar. By means of this economic datebook, I can gather all financial indicators which drive the whole market place.

Abu Boccor
12-25-2015, 08:47 AM
No one becomes professional in this market place, if he does not know how to manage money. Most of us think, proper trading skill is enough for making profit constancy but, pragmatically devoid of exact money management, you can be successful at all. by the way, I am very lucky to select MXTrade as my trading platform which is very supportive to make proper money management by providing many trading facilities.

Martin Kent
01-23-2016, 01:56 PM
Success in Forex comes through 2 ways, firstly it is with common sense plus money management way, but that’s the straight forward way to cover up lack of knowledge and experience, if we have that then we can perhaps drop money management down, but still common sense has to be present. I don’t have great knowledge and experience, so I focus on larger money management and that’s easier with OctaFX broker using their 50% bonus on deposit offer on for all.

Abu Boccor
05-16-2016, 09:18 AM
According to my trading experience, as a part of money management, I don?t consider high leverage at any risk, if there is any risk, it is completely with non-sense planning and zero risk management policy, nothing to do with high leverage at all. In my trading career I am very lucky top choose MXTrade broker which is an ECN and for all time make sure up to leverage 1:400 (https://www.mxtrade.com/)which is very supportive to trade in a high lot in spite of small balance. So, my trading life is very much profitable.

Abu Boccor
05-16-2016, 09:22 AM
According to my trading experience, as a part of money management, I don?t consider high leverage at any risk, if there is any risk, it is completely with non-sense planning and zero risk management policy, nothing to do with high leverage at all. In my trading career I am very lucky top choose MXTrade broker which is an ECN and for all time make sure up to leverage 1:400 (https://www.mxtrade.com/) which is very supportive to trade in a high lot in spite of small balance. So, my trading life is very much profitable.

Hilry Canes
05-24-2016, 05:52 AM
Money management is very crucial and can save us from unwanted situations, but if we’re not trading with proper money management then we could be in huge risk. I am lucky that for me with OctaFX broker, it’s all too easy with their giant 50% bonus on deposit which is also use able, so that’s why I am able to perform so well with complete comfort and freedom, it also makes us relaxed while trading with having such high capital.

Umar Khalifa
06-29-2016, 01:29 PM
As a part of money management, I always use 1:100 leverage for avoiding risk , in spite of having up to leverage 1:400 that always make sure my trading broker Trade12. But, in my demo trading I took high leverage to see the performance how it works.

Hilry Canes
07-02-2016, 09:43 PM
If we wish to be successful then we got to do right money management, as that’s the only way we will be able to work it out. I am not the greatest investor, hence I look for alternative to help me out with money management and that’s where I find OctaFX to be pretty useful especially to do with their mouth-watering 50% bonus on deposit offer, it’s super cool due to been use able too, so that’s why I am able to perform so nicely.

felix
07-25-2016, 11:19 AM
Try that "Hot Trip" promo (https://freshforex.com/company/news/news_6779.html) for summer money management. To tell the truth, I've never felt free from trading like this before... Perfect summer, indeed!

Mike Whitney
09-22-2016, 08:52 AM
If we really wish to be successful in Forex then money management should be our top look after thing and only then we will be able to reach far. I am currently trading with OctaFX broker where I get perfect support as far money management is concern and that’s through their 50% bonus on deposit offering, it’s absolutely awesome and really helps up with working for me which allows me to be successful as well and I am able to trade easily.

Battledoom
09-23-2016, 01:00 PM
Money Management is one of the crucial element of Forex Trading and it is consider as a serious issue, else you might end up losing all your money, if you don't keep a good record of it.

Annette Ashley
10-11-2016, 10:37 AM
Money management is very important because this plays two roles for us, it’s a way where we can trade with safety and it’s also the way to fall back upon, it’s the reason why I am always keeping tight money management in work to gain maximum rewards. I am able to do it rather nicely which is because of OctaFX broker with using their 50% bonus on deposit scheme which is sensational with the bonus been use able too, so works very well for me.

Battledoom
10-14-2016, 02:01 PM
Yeah...! And along with Money Management, we also need to deal with the Risk Management. If a trader knew how to do it, he could achieve more and more success in Forex Trading.

Annette Ashley
11-23-2016, 12:30 PM
Money management is something which is extremely important and is what will make massive difference. I am able to do it with high amount of perfection and that’s all due to OctaFX under their stunning bonus up to 50% on deposit which is use able, so that’s why I am able to perform so nicely and is something that brings so much comfort to me and allows me to work ever so nicely and brings a lot of profits as well.

Battledoom
11-24-2016, 05:21 AM
Money Management is the most important aspects that needed to be deal with Forex Trading, else without money we can trade and if we lack in proper Money Management, we may lose it all.

Resmana
01-10-2017, 03:59 AM
Money Management is the most important aspects that needed to be deal with Forex Trading, else without money we can trade and if we lack in proper Money Management, we may lose it all.

of course the money is everything, especially in forex trading business is necessary to do in the way of training well so that we can make money from forex trading results of running activity. And in the management of money it should be done properly, and should know how where the risk to come can be controlled properly anyway