The Novice Forex Trader Needs To Manage His Money Carefully

HOME 1.

Review Guidelines | 2.

Review TOS | 3.

Signup FREE | 4.

Submit Articles

Free Articles on Finance and many other topics
Another free Finance article for you

Home | Finance

The Novice Forex Trader Needs To Manage His Money Carefully - By: Donald Saunders, Posted on: 2007-09-06

Before you start trading on the Forex it is crucial that you make time to learn the ins and outs of markets and that you start your Forex trading with a clear philosophy and a defined strategy. Then, once you start trading it is equally vital that you manage your trading funds with great care.

As well as knowing which currency pairs to trade and being able to recognize entry and exit signals to trading, the successful foreign currency trader must be able to manage his resources and to incorporate money management into any trading plan.

There are a number of different strategies that can be applied to money management, but the majority of them will be based upon keeping a track of what is known as your core equity. Your core equity is defined as the sum that you start trading with less the money that you have in any open positions. So, if you start trading with $15,000 and have $1,500 in open positions then your core equity is $13,500.

In general, when starting out you should try to limit your risk to no more than 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, to keep yourself safe, should ideally start at just $1,000. This can be achieved by putting a stop loss order 100 pips (where 1 pip = $10) above or below the position at you enter a trade.

Of course over time your core equity will move up or down and you can then adjust the dollar amount of your risk. Taking our example above, with an opening balance of $15,000 and one open position, your core equity is $13,500. If you then open 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 increase your level of risk. Consquently, if trading is going in your favor and you make a profit of $5,000 your core equity is now $20,000 and you could raise your risk to $2,000 for each transaction. Alternatively, you might also decide that you are going to risk more from any profit made than you would be prepared to risk from your original opening capital. You might, for example, decide to risk up to 5% of any realized profits ($5,000 on a $100,000 lot) to give yourself a greater profit potential.

The secret to profiting from foreign currency trading relies on a number of different factors and one very important part of your trading strategy lies in your ability to tightly manage and control the money that is available for trading.

Article Source: http://higradesearch.com

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

Please Rate this Article

Not yet Rated