Forex Money Management
Forex brokers will rarely teach traders good money management skills, though almost all brokers will offer some sort of education, therefore it is important to learn on your own.
There are some rules of good money management:
1. Risk only small percentage of a total account
Why is it so important?
The main idea of the whole trading process is to survive!
Survival is the first task, after which comes making the money.
You should clearly understand that good traders are, first of all, skillful survivors. Those who also have big capital can additionally sustain larger losses and continue trading under unfavorable conditions, because they are financially able to.
For an ordinary trader, the skills of surviving become a vital "must know" requirement to keep own Forex trading accounts "alive" and be able to make profits on top.
Take a look at the example that shows a difference between risking a small percentage of capital and risking a larger one. In the worst case scenario with ten losing trades in a row the trading account will suffer this much:
Apparently, there is a big difference between risking 2% and 10% of the account balance per trade. A trader who has made 10 trades is risking only 2%, under the worst conditions he would lose only 17% of his initial investment. The same trader who had been exposing 10% of the balance per trade would end up losing over 60% of his initial investment. As you can see, this simple decision can have serious consequences if misjudged.
Risk Disclosure: FX Trading Online will not accept any liability for loss or damage as a result of reliance on the information contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets. Currency trading on margin involves high risk and is not suitable for all investors. Before deciding to trade foreign exchange or any other financial instrument you should carefully consider your investment objectives, level of experience, and risk appetite.