The Novice Forex Trader Needs To Manage His Money Carefully Article

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The Novice Forex Trader Needs To Manage His Money Carefully

once you have established a clear trading philosophy and decided upon a trading strategy, it is vital for foreign currency traders to manage their trading funds and this article gives a brief insight into just what is meant by this.

Author: Donald Saunders

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Before you begin to trade on the Forex it is vital that you take the time to study the currency markets and that you begin your Forex trading with a very clear philosophy and a defined strategy. Then, once you begin trading it is equally important that you manage your trading funds with great care.

In addition to knowing which currencies you should trade and being able to recognize entry and exit signals for trading, the successful foreign currency trader has to be able to manage his resources and to incorporate sound money management into his trading plan.

There are many different strategies which can be applied when it comes to money management, but most of them will require you to keep a track of what is known as your core equity. Your core equity is the sum which you begin trading with less the money which you have in any open positions. In other words, if you begin trading with $15,000 and have $1,500 in open positions then your core equity is $13,500.

As a general rule, when you first start out you should try to limit your risk to 1% to 3% of every. Thus if you are trading a standard Forex lot of $100,000 you should keep your risk to $1,000 to $3,000 and, for safety, should probably start at just $1,000. This can be achieved by placing a stop loss order 100 pips (1 pip = $10) above or below your entry position for a trade.

Over time your core equity will rise or fall and you can simply adjust the dollar amount of your risk. Taking our example above, with a starting balance of $15,000 and one open position, your core equity is $13,500. If you then add a second position, your core equity will drop to $12,000 and you should limit your risk accordingly.

On the same basis, as your core equity increasesrises, you can also raise your level of risk. So, if trading is going well and you have made a profit of $5,000 your core equity is now $20,000 and you could raise your risk to $2,000 for each transaction. As an alternative, you could also decide to risk more of any profit made than you would be prepared to risk from your original starting capital. You could, for example, decide to risk up to 5% of any realized profits ($5,000 on a $100,000 lot) giving yourself a higher potential for profit.

The secret to making money in foreign currency trading relies on many different factors and one very important element of your trading strategy lies in your ability to manage and control the money that you have available for trading.

About Author

Learn Forex trading online and discover the benefits of Forex mini trading at LearningForexTradingOnline.com

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