John Rosatti, The Novice Forex Trader Needs To Manage His Money Carefully
Before you begin to trade 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 definite strategy. Then, once you start trading it is equally important that you manage your trading funds with the greatest of care. As well as knowing which currencies to trade and having the ability to recognize entry and exit signals to trading, the successful Forex trader has to be able to manage his resources and to incorporate money management into any trading plan. There are numerous different strategies which 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 which you start trading with less the money which you have in any open positions. In other words, if you start trading with $15,000 and have $1,500 in open positions then your core equity is $13,500. In general, when you first start out you should try to limit your risk to no more than 1% to 3% of every. This means that if you are trading a standard Forex lot of $100,000 you should limit 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 (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 merely adjust the dollar amount of your risk. Taking our example above, with a starting balance of $15,000 and one position open, 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 in your favor and you have made a profit of $5,000 your core equity will rise to $20,000 and you could raise your risk to $2,000 per transaction. As an alternative, you might also decide that you are going to risk more of any profit made than you would be prepared to risk from your original starting 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 making money in foreign currency trading relies on a number of different factors and one extremely important part of your trading strategy lies in your ability to tightly manage and control the money that you have available for trading. Learn Forex trading online and discover the benefits of Forex mini trading at LearningForexTradingOnline.com
