Money management in Forex trade is what distinguishes somebody who is experienced in this trade and an amateur. Despite the fact that traders know the importance of money management very few of them actually practice. The laborious nature of this task and the fact that it requires a lot of attention makes most traders shy away.
Trading Forex needs strict money management; it is what differentiates this trade with gambling. Managing money well is the only way that a trade can make money, there are no two way about it. Doing it any other way will lead to disastrous effects such as getting a small profit margin or even going at a loss. This stresses on the need to have good money management skills in this trade.
Money management tips
It is important to know that when trading money there are chances that will win some money, or may loose. Losing money in this trade is normal, therefore one should not be discouraged, and it is part of the game. It also at times happens to those who have been in this trade for long and have the necessary skills and experience. Given that anyone can lose money in this game, the management skills that come in hand especially those who are new in the market.
Before starting to trade one should ask himself or herself the amount they are willing to risk. It is worth noting that this is a matter of risk, this is basically saying that one should not risk an amount that you are not willing to loose. This safeguards you in case the market reacts in a way that you did not expect. Despite the fact that this business is all about taking risks, money management rules dictates that one should risk an amount which is reasonable according to their own terms.
There are lessons that one should learn while in this trade, the first one is trying by all means to prevent the risks in the Forex market through stop losses.
The second tip is to avoid risking more than one percent of the initial capital. It requires high level of discipline to achieve this. The first management method helps in generation of several instances of psychological pain. The second management strategy provides several small instances of joy but at a risking of facing a few bad psychological hits. Having a wide stop strategy exposes the trader to chances of losing a week or even a month profits in just one or two trades.
The method which is chosen by any particular trader greatly depends on the individual personality; each trader has to discover what works best for them. Forex market accommodates the two styles equally well without the trader incurring any extra cost. Given that the Forex is largely based as a spread market, the cost of every transaction is similar in all cases regardless of trader’s position.
Money management involves setting the rules and following them strictly, if one of them is bent, the trader will not get the targeted amount of profits. The kind of rules that are set should rhyme well with the strategy that one chooses. This means that the trader should carefully consider the trading strategy and come use it to come up with the necessary rules. It is understandable that different strategies would require different money management rules.
Money management is important in any investment and more so trading forex, the kind of risk involved in this activity calls for extra caution but on the other hand one should be willing to take risks in order to succeed in this trade. It necessary to learn money management skills as they come in handy when trading Forex, this should be done before one starts trading.The learning process should continue ,with the trader looking to polishing the skills,Learning from those who are good at money management can offer good lesson,those that have worked and lead to their success.