Money management is a crucial technique every Forex trader needs to understand, while they are actively trading in the market. Newcomers need to consider multiple aspects to become a successful trader and money management is one of them.
If you are trading for fun, then it is fine but if you want to make profits open a free Forex demo account on adss.com. On this platform, you will learn what are leverage, pips, and margin. Remember, money management will seem extremely hard in the start but soon you will get a hunch on how to handle it.
Helpful money management tips to successfully trade in the FX market
Never give up your steady income
Many people became billionaires overnight with FX trading. It doesn’t mean you have to give up your existing source of income and jump into FX trading because everyone is not an intelligent trader. With a steady job, you can have sufficient cash to handle your routine expenses and trading activities.
Never quit your job as soon as you start earning profits because the FX trading marketplace is volatile and unpredictable. Treat it like a hobby and nurture your trading skills without pressurizing yourself.
Stick to your affordability
Any kind of trading activity involves an investment of extra or spare money. It means paying essential bills and daily expenses. There is no guarantee that you will earn profits in every trade, so when you enter a transaction think that the dollars you spent are gone forever.
Maintain a diary for your trading activities. Set your affordability limitations every month and stick to this budget. Never sacrifice your hard-earned cash and risk losing funds essential to survive.
Consider the risk: reward ratio [RRR]
RRR helps to identify the potential profit you can earn on every dollar you risked in entering a trade. At the start, set RRR of roughly 1:3. It means you can sacrifice 1/3rd of what you can possibly win. RRR set is based on every trader’s affordability and risk tolerance. It differs from one trader to another.
Regularly use stop loss
Using stop-loss helps to lessen the risks and increase your profits. Stop losses are of two types.
- Equity stop – It means the trader chooses to risk a fixed amount on every trade. Normally, it is a 2% stop, which means you will risk only 2% of total money on any kind of trade. Seasoned traders use aggressive techniques and choose 5% to stop, but not recommended for new traders.
- Chart stop – Trend traders concentrate on the technical analysis. They may use chart stops or mix them with equity stops. For example, a chart stop uses swing high or low point. You can mix it with equity stop to ensure 2% of the total money in the account gets risked.
Margin or volatility stops are also chosen, but are too risky and intricate. Therefore, leave it to the successful traders with profound knowledge to trade Forex.
Money and emotions are adversaries
When you trade, leave emotions outside the door. Emotions are normal but can be disastrous when your risk is more. Emotions don’t allow you to make educated decisions. You don’t desire to make emotional decisions and lose big, so on adss.com open a free FX demo account and learn to control emotions and money management.