Money management is crucial in Forex Trading

Discussion in 'General Forex Discussion' started by andy003, Jan 15, 2009.

  1. andy003

    andy003 Master Trader

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    The importance of money mangement in forex trading is as much as the trading strategy itself.In fact, it is the money management that should come first and the actual trading next.
    Money management is the same as the “Risk management”. The amount of money invested in a trade is directly related the risk it carries. It is ability to bear the loss in case of a bad trade.

    Most trading focuses on only making profit. The real focus should be to “protect the capital invested while making profits”. Unnecessary risks only burn the account with false/ill managed trades. Money management allows us to establish our own system in such a way that will guard the most crucial asset-your investment.
     
  2. FXexpert

    FXexpert Master Trader

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    I agree, many traders do unfortunately get carried away with greed..it's important to protect the initial investment as well.
     
  3. effx

    effx Active Trader

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    For beginners like me, what is the most conservative % to risk from my account?
     
  4. Enivid

    Enivid Administrator Staff Member

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    1-2%
     
  5. $danmarius7

    $danmarius7 Active Trader

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    I agree, money management should be the first thing to think about for a beginner (just like me). Don't risk more than you can afford to loose.
     
  6. andy003

    andy003 Master Trader

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    The Rule of thumb is: don’t risk more than 2% of your total capital
    How many trades will be successful in a system is never certain. Without money management you can be broke even before you can recover with further successful trades. It will require a new deposit each time. With 1% risk the trade is even more secure. But the key is not to risk any more than 2% of your total equity.
     
  7. Sinnerman

    Sinnerman Active Trader

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    I would take it even more conservatively than the previous posters and say 0%. I suppose it depends on what you mean by "beginner", but if you really are just beginning, then don't risk anything and trade a demo account. Until you know enough to stop calling yourself a beginner, my suggestion is just practice on demo. You'll know when you are not a beginner any more and when it's safe to step out into the wild. I would say good luck, but I'm hoping you won't need it ;).
     
  8. Enivid

    Enivid Administrator Staff Member

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    Good point, but in my experience I've learned better when I traded a very small real account than when I traded on demo. Trading with some real money (but not a big amount) can help to develop a discipline and add the feeling of loss/win.
     
  9. Sinnerman

    Sinnerman Active Trader

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    This is one of those "never-ending" discussions... The reason a real account is different from a demo (besides execution) is the sense of "realness" to every win and every loss. The idea is that you trade with an amount of money big enough for you to care about. If you are trading with an amount so small that you don't care if you lose it, then it's as if you are trading demo - in my opinion anyway. Still I can see people seeing it your way.

    And of course, even on demo, you do need to apply proper management, so the 1% risk rule is fairly sound I believe - my point was actually that you should risk 0% of your real money and about 1% of your demo money. It's a good way to test your discipline. If you get greedy on demo, chances are you will get even greedier with real money - and greed is guaranteed to wipe you out.
     
  10. Enivid

    Enivid Administrator Staff Member

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    Yea, but if you aren't greedy on demo that doesn't mean that you won't become greedy on a real money account. Anyway, it's a good idea to start your money management learning from demo and then move onto the small real account and only then on a real account with real amount of money.
     
  11. Pinalli

    Pinalli Master Trader

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    Hi

    For me, Forex money management is one of the most important things i learnt before i actually begin making live trades.

    The money management principles discussed above are just good enough to give an idea about it. I think it is important to teach you how to avoid the costly mistakes many new traders make, often to the degree that they lose their entire investment on the first handful of trades.

    Psychology is really the most important factor to money management in forex. You have to be able to separate yourself from any emotional attachment you may have to your money. This is not very easy to do, but it works and it can be done.

    If you allow yourself to become emotional on a trade, you will not exit the trade properly, and this could mean holding on to a trade when you should have let it go, or letting go before the trade had a chance to turn profitable.

    Hope this helps....
     
  12. ForexTrader

    ForexTrader Master Trader

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    I totally agree with you especially when it comes to the beginners in Forex trading. They sometimes don't know when to stop especially if they get a little winning streak then again dont we all from time to time.
     
  13. ForexVillage

    ForexVillage Active Trader

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    yes, i agree - don't get greedy and risk too much, especially after a winning streak. I tend to risk no more than 2% on each trade. For those who are interested, here's a very useful article on money management by a forex trading legend - if you read this article, it shows how you can still make millions from trading forex, by taking small, but consistent profits, and compounding those profits....
     
  14. orange2009

    orange2009 Active Trader

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    i dont like taking risk
     
  15. mantop

    mantop Active Trader

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    i'm take only 2% risk..now i used Forex Auto Pilot System i think it's very success to me..just want share with u all
     
  16. jimb12345

    jimb12345 Active Trader

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    you are so correct. you have to manage your money. take little risk
     
  17. pipmanager

    pipmanager Active Trader

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    If you dont manage money ur not a trader!!! prefer to us an MT4 based system cause they have very easy stop loss and take profits.
     
  18. FXexpert

    FXexpert Master Trader

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    Yes minimizing risk is very important.
     
  19. andy003

    andy003 Master Trader

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    You can make it 60 to 40. That means if the success on forex depends on your trading skills 60% then it needs 40% of the fund management as well.
    That will be the complete success.
     
  20. pde10d

    pde10d Master Trader

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    Are you sure 60% for trading skills and 40% of the fund management as well. ???
     

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