Forex Help

Money Management

If you are looking for Forex help in the area of money management, this is the page for you. Regardless of what Forex trading systems you use, you need to know how to calculate the proper lot size so that your account is not blown up on a single trade. Here are a few things to consider about money management in the Forex market.

Money Management

The concept of money management deals with how you handle your trading and how much of your account you put at risk with a single trade. While many traders like to take on a great deal of risk, it is generally a good idea to only risk between 1 and 3% of your account on any one trade.

This allows you to live to fight another day if you go on a bit of a losing streak. Of course, you are always free to take on more risk than that if you choose. However, many professional traders would only recommend putting a maximum of 3% on a trade. If you are really confident about a trade, you may opt to put 5% in. Any more than that and you are bordering on reckless.

Lot Size

Even though you might understand the concept of money management, implementing it is a completely different matter. If you use a piece of software to trade the market for you, you may be able to simply and put a percentage into the user inputs and it will do the calculation for you. If you trade Forex online with a manual system, you will have to figure out how to calculate the proper lot size.

For example, if you are trading standard lots, you will be risking $10 per pip in most cases. With a 20 pip stop loss, this is the maximum amount of money that you could lose at $200. This means that if you have a $10,000 account, this would represent risking 2% of your account balance. If you moved the stop loss to 30 pips, you would be risking 3%, etc.

Calculating Lot Size

In the Forex market, it is rarely as simple as the example given above. You have to be able to make these calculations quickly and do them on the fly. If you cannot calculate the proper lot size quickly, you might miss out on a trading opportunity. For this process, using a Forex position size calculator like the one at Baby Pips. With this tool, you can simply input the currency that your account is in, the account balance, the percentage of risk that you want to use, the stop loss in pips that you want to set and the currency pair that you are trading. Then you click on the "Calculate" button and let it do its thing. It will tell you the exact size of the position that you need to open and the exact amount of money that is at risk.

This is one of the best sources of Forex help that you can find when trading online and you need to bookmark it and use it regularly.

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