Money Management In Forex
Money management or money management is one of the most important aspects of forex trading. Without proper money management a trade will never be able to build a sound capital to build the trading of currencies.
This applies not only for forex but for all financial markets.
Many traders relax the rules of sound money management tend to boot with all their consequences. It is no fiction that some traders lose 90% of their portfolio to 1 transaction!
As a general rule it is recommended that no more than 2% of the total portfolio to 1 forex market open to risk, and never more than 6% of the total portfolio risk to all open positions.
Example for a portfolio of 25,000 Euro
You may take up to 500 Euro per open position risk (2%).
You may take up to 1500 Euro risk for all open positions (6%).
In this way makes you sound money management and you will avoid having to inflate the bill by 2-3 transactions that turn out to be loss.
Q: I have a trading system that 75% correct, I take 15% risk per trade?
Unfortunately not! Imagine doing 100 transactions with this system. How do you know which of these 100 trades are winners and the losers? If you take risk increased by 15% per transaction and the first 25 transactions are the losers, you are unlucky and your account is virtually zero.
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