Three Forex Trading Money Management Moves That Can Help You Earn More and Lose Less

by Trading 101  //  Jan 28, 2019

When Forex trading, the term "money management" refers to how you manage the capital that you have available for trading; this specific type of money management includes decisions related to how much you will risk on each trade, how much money you will decide to buy or sell, and you will decide which indicators means that it's time to buy or sell. Money management is a crucial skill that everyone involved in Forex trading because it helps you not only make smarter trades, but also to know when to bow out. As a Forex trader, unless you implement long-running money management techniques, you will likely lose money, including any money that you have made thanks to accurate market forecasts.

We've collected some of the web's best money management moves that can help save you money and earn more when Forex trading. Read on to learn three money management moves all Forex traders need to know when making smart movements.

Position sizing limitation. Position sizing refers to the amount of your total capital that you invest on each trade; it is the volume of your trade or order. Proper money management involves strict limitations of your position sizing. It is generally advised to risk no more than 1 or 2% of your total capital because going over this amount can put your entire Forex trading portfolio at risk and is considered excessively and recklessly dangerous. Think about it as deciding to "put all of your eggs in one basket." By limiting your position sizing based on the size of your portfolio, you can protect yourself should you lose money on a trade.

Implementation of stop-loss orders. A stop-loss order does exactly what it says; it's an order given to a broker to sell a security when it reaches a price that, if it is allowed to continue to lower, and thus making the overall value of your account lower. Stop-loss orders are useful for a number of reasons. First, many Forex trading systems are now automated, and they do not require you to sit in front of your computer 24/7 and constantly monitor the prices of the currencies in which you have invested. Second, stop-loss orders provide you with a type of "insurance" against unforeseen trading or technological events. If your power goes out, you are unable to log onto your account, or if the price of a currency suddenly drops when you are not monitoring your account, a stop-loss order will sell off your securities. Finally, implementing your Forex trading account with a stop-loss order prevents you from allowing your emotions to influence your trading, and can even protect your savings should the value of a currency fall so drastically.

As a Forex trader, you'll need to use your trading strategy to determine where your stop-loss orders should be implemented. However, failing to use stop-loss orders can potentially mean losing every profit you've earned in the course of a night.

Use of conservative estimations. When a Forex trading beginner loses money, 9 times out of 10, it is because the trader risks too much and gets too bold with their trading strategy. By using a conservative attitude and knowing when to sell with conservative earning can save you stress as well as a large amount of funds.





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