Forex Money Management

Forex money management is one of the most crucial concepts you can learn when you want to become a professional trader. The biggest difference between a rookie trader and an experienced veteran is the money management. The rookie trader might do a good job of figuring out when to get into the market, but he has no idea when to stop trading or how big of a position to take. If you want to take your trading to a consistent level, managing your money is the most important factor. One of the first topics you would study in any Forex trading school is that of money management. Without it, you're going to be one of those guys who gets on the Forex forums and complains about everything being a scam.

How Much to Risk

When trading the market, you need to always decide to risk a certain percentage of your account balance. Most experts recommend risking the more than one to three percent of your account balance on anyone trade. When you have a very large account, you may not even need to risk that much to make a decent amount per trade.

Those with a little more appetite for risk might lean towards the three percent threshold while the chicken's among us (also known as the sensible traders) might prefer only risking one percent at a time. Regardless of your appetite for risk, Forex money management can work for everyone.

Figuring the Lot Size

Regardless of how big your trading account is, you should be able to only risk a certain percentage of your account on any one trade. To do this, use a Forex calculator. These can be found in many different places online and they are very easy to use.

With these Forex money management calculators , you will usually need to enter your account balance, the percentage risk you want to take, the stop loss, the currency your account is in and the currency pair you want to trade. When you hit calculate, the calculator will spit out a Lot size to use on the trade. For example, it may tell you to trade .34 lots on the GBP/JPY pair. Then you simply go into your trading platform and place the trade at the appropriate level.

Stick to Your Plan

When managing your money, you need to be able to stick to your plan. You might have the best trading strategy in the world. If you don't stick to your plan, it will all be for naught. Develop a trading plan and then don't deviate from it at all.

Daily Goals

Many traders like to use daily goals to keep them on track. Besides having a goal on a particular trade and risking a certain amount of money per trade, you can also set a daily maximum on profit and loss. For example, you may decide that once you have made $300 or lost $200 in one day, you are done. Until you reach that goal, you keep trading when opportunities present themselves. Once you reach the goal, even if you reach it at 9:30 in the morning, you're done for the day.

Not everyone trades with this type of strategy, but it can be productive. It helps you stay away from the gamblers mentality. For example, some people who have one several a row think that they are 'on fire" and want to keep going. Then they place another trade and lose all of their money. Others take the opposite approach and lose hundreds of dollars in a day thinking that "the next one is the one." If you'll stick to a daily goal, it will help you deal with your gambler's mentality.

Patience

When you trade in this market, you have to be patient. This is not the type of trading to get into if you are one of those people who taps your fingers on the desk just waiting for a trading opportunity to take place.

You have to be patient and wait for the proper set up. You can be paid very well for being patient in this game. Otherwise, you'll end up with a lot of action, but very little money, if any, to show for it. Forex money management can help your bankroll continue to grow slowly but surely.

Regular Withdrawals

You may also want to get the habit of taking regular withdrawals from your account. Most Forex brokers allow you to take withdrawals whenever you want and you should take advantage of this when you win. When you take out your profit, it allows you to play with "house money." This also helps you avoid losing it all on a really bad trade or day.



Return From Forex Money Management to Forex Market

Return From Forex Money Management to Forex Trading