Forex trading is not a walk in the park. You might have heard it said time and again that it is not for everyone but if you think you are brave enough to venture into the field, your first lesson will be on money management. The experienced forex trader is not the one who trades every hour but who makes profits on a consistent basis. For you to be able to be a successful trader, you need to become an expert money manager. This article will discuss some of the best tips that you can use. Read on.
Do not start with thousands of dollars
This is the first tip that you need to understand. Forex brokers have a way of knowing an experienced trader and one who is just getting into the game. With this they know that most of the cash you start with will end up in their accounts. As much as you want to walk away with thousands of dollars in your first month of trading, it is wise start with an opening balance that is reasonable to you. This will give you the space that you need to learn the ropes of forex trading.
Protect your account by not over trading
The second thing you need to know on forex trading money management is that you need to protect your account. One way of doing this is by resisting the urge to over trade. In the event that you make a loss, you may be tempted to keep trading to recover it but this exposes you to even bigger losses. On the same note, do not be tempted to buy a lot of times to make more profits. Like they say, slow and steady wins the race.
Manage your risks
Forex trading is always about risks and don't be fooled into thinking that the more risk you take the more of a trader you are. The wisest trader will always make sure that the maximum amount of risk they can take is 5% no matter how appetizing a trade may appear (for new traders we recommend no more than 2%). This is a way of protecting themselves to be able to trade the following day. As a beginner you will need to learn to calculate your risk as shown in the example below.
If you have USD 12000 as your opening balance, you may decide on a trade that has 20 pips stop loss and make sure that you don't risk anything more than 2% of your money on the transaction. With this, you have the option of starting the trade with a single lot or ten mini lots. The ten mini lots option is better in that you will only stand to lose USD 240 which is acceptable based on the opening balance.
Never trade when you are supposed to be sleeping
This is a rule that every smart trader uses. This is because your body is used to a certain routine and the moment you disturb the routine you will easily make money management mistakes. As you progress in forex trading, you will know the best times to trade but the important thing is to make sure that you stick to them.
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