*sharing my post from other forums*
If you want to make some real money in forex trading, the risk should be calculated from all your capital, rather than per one trade.
Risk management goes like this:
first of all you need to assess the maximal drawdown (in money! not in %) that will make you emotionally comfortable, so that you don’t start closing positions, only because panicking. Obviously, this decision will depend on your perception of yourself and all your capital. It’s very personal. For example, someone who has $100k of funds, might feel that his max comfortable DD is 2k, while for someone else this would be 5k or even only $500.
For example, let’s say that for you the comfortable dd is 1k.
The next step is to back test your strategy and see what volume you need to be trading so that the DD doesn’t exceed 1k. Next you need to configure what balance you should deposit so that you don’t hit the margin stop: you need to see the maximum margin you will be using (deposit load). This will depend on your strategy and the leverage provided on your account.
Then, you can make an adequate deposit.
For example if your broker’s margin stop is 50% of the used margin and your deposit load will be 50% the balance, then you can deposit 2k and feel safe, because your max dd will be 1k (50%), and the margin stop will get activated only if you reach dd of 1.5k (75%). You can deposit even more, but if you know that your will start closing your trades yourself anyway when they reach dd=1.1k, so no reason. It’s all personal. After all, our goal is to be in control and feel comfortable. Otherwise mistakes and losses are inevitable.
If you want to make some real money in forex trading, the risk should be calculated from all your capital, rather than per one trade.
Risk management goes like this:
first of all you need to assess the maximal drawdown (in money! not in %) that will make you emotionally comfortable, so that you don’t start closing positions, only because panicking. Obviously, this decision will depend on your perception of yourself and all your capital. It’s very personal. For example, someone who has $100k of funds, might feel that his max comfortable DD is 2k, while for someone else this would be 5k or even only $500.
For example, let’s say that for you the comfortable dd is 1k.
The next step is to back test your strategy and see what volume you need to be trading so that the DD doesn’t exceed 1k. Next you need to configure what balance you should deposit so that you don’t hit the margin stop: you need to see the maximum margin you will be using (deposit load). This will depend on your strategy and the leverage provided on your account.
Then, you can make an adequate deposit.
For example if your broker’s margin stop is 50% of the used margin and your deposit load will be 50% the balance, then you can deposit 2k and feel safe, because your max dd will be 1k (50%), and the margin stop will get activated only if you reach dd of 1.5k (75%). You can deposit even more, but if you know that your will start closing your trades yourself anyway when they reach dd=1.1k, so no reason. It’s all personal. After all, our goal is to be in control and feel comfortable. Otherwise mistakes and losses are inevitable.
