Forex trading can make you a lot of money without having to quit your day job. You also don’t need to be an expert trader to get started. However, it can also be very risky. While leverage is great for making far more than you invest, you can lose just as much. It is vital that you’re up to date with these 10 most important Forex money management tips.
1. Manage your money first
Forex is tempting because you can jump right in. However, if you do so without managing your money, you could easily end up losing it all, making it impossible to stay in the game. The two basic rules for beginners are:
- have enough trading capital for 40 trades
- don’t risk more than 3% of your capital on each trade
2. Only trade with risk capital
You should never trade with money that you need for day-to-day living. If you’re using your rent or food budget, you are putting far too much at stake and could end up regretting it. Decide how much you can afford to lost and put these funds aside. This is known as risk capital, as it is expendable.
3. Always utilise a stop loss
Putting a stop loss in place is a must. It makes sure that you get out of a trade if it is falling further than you anticipated. Don’t get emotionally invested in the trade, which can cause you to stay on even though it’s losing.
4. Be careful with leverage
The Forex market is great as you can make far more than you invest. With leverage, your profits are multiplied. However, your losses are also multiplied. One loss can end up being devastating.
5. Keep your emotions in check
Trading psychology is very important. All trades should be made with a level head, and it is therefore crucial to learn to keep your emotions in check.
6. Accept all outcomes
You are not guaranteed to profit and you need to accept this. Even when you are succeeding, you will lose on some trades. If you don’t accept this, you’ll end up making naive decisions.
7. Manage risks to avoid over trading
Over trading is a real possibility, especially if you don’t manage the risks. If you’re clear about how much you stand to make and lose, you’ll know what constitutes over trading.
8. Set position size
A crucial element of Forex money management. Before trading in Forex, use a Forex position size calculator to adjust and frame a position chart according to your desired profit value.
9. Be realistic, content, and communicate
Communication with other traders is necessary to keep up to date with market sentiment. It is also necessary to be realistic with how much you can make, and be content with what you’ve got.
10. Cut the losses and add on profits
If your activities are resulting in trading losses, cut them short. Add on any new plans which are likely to bring better results.
As a Forex trader, it is in your best interests to take heed of these Forex money management tips. Doing so will only increase your likelihood for profit, and keep you from losing big.