Forex Money Management is a method by which Forex traders manage their Forex accounts. Money management is very important for Forex traders. A good money management helps to protect your forex account from bankruptcies. If you follow a good money management, you are less likely to lose forex capital.
How To Learn Forex Money Management Techniques?
There are some rules for good forex money management:
1.Take risk with small percentage according to account balance:
Why important to take a small percentage risk according to the balance of the account?
The reason is that you need to maintain your account for a long time. First you need to maintain your account, then you need to think about Forex profit.
Good forex traders are those who can maintain their forex account and are very aware of this.
If you trade Forex with low risk, you can hold your trade for a long time even if you lose a lot in any trade. Below is an example of trading with less and more risk than the total percentage of your account in Forex trading. See how much loss in 10 consecutive trades can damage your Forex account.
Peak It is clear how much difference there is between 2% risk and 10% risk. No one easily trades 10 in a row. Even if you continue to trade the worst, if you take 2% risk you will lose 16% of your forex capital if you lose 10 trades, whereas if you take 10% risk per trade you will lose more than 60% of your capital if you lose 10 trades. So, you understand the importance of money management in Forex. If you do not manage money properly in Forex, you may face huge losses.
2. It is difficult to recover lost capital in Forex:
If someone loses a portion of their Forex account, how difficult is it to recover it? Peak If you lose 50% of your forex account, you need to gain 100% of your new balance to recover the loss. And if you lose 75%, you have to make a profit of 300% of the new balance to recover the previous loss from this market only. So if you make a huge loss then you are busy with that loss recovery, then who will make a profit? This is the challenge of this market. Try to see if you can make a profit of 300% on a Forex demo account or at least 100% on your real account. It will not be as easy as you think. Forex Money Management is important for this.
3. Calculate the risk ratio before trading in Forex:
When the chances of losing a trade are higher than the profits, refrain from trading. There is no such thing as always trading forex. For example:
- 50 pips loss vs 40 pips profit.
- 30 pips loss vs 30 pips profit.
Two examples are examples of bad forex risk management. Before opening a trade in the Forex market, make sure that the risk: reward ratio is at least 1: 2 (1: 3 ratio or better).
This means that you should open a trade in which you are more likely to make a profit than you are likely to make a loss. For example, it would be wise to enter a trade in which you can earn 100 pips in terms of losing 30 pips. If you can properly follow these rules of money management in Forex, it will help you to succeed later and become a professional trader. Forex Risk: See the chart below the reward ratio. 1: 3 Risk: 10 trades with reward ratio.
When one loses a trade, he loses $ 100. But in each of his profitable trades, he made a profit of $ 300
So, it turns out that if a Forex trader succeeds in a 50% trade with a 1: 3 risk: reward ratio, he can still make a good profit.