Money Management Tips For Forex Traders
Posted by | Posted in Trading | Posted on 06-09-2010
Failure in investing comes in two forms; Failure to maintain your principle and failure to effectively grow your principle. If you want to become a successful trader, than you need to learn how to grow your principle in the long term.
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You should know before each trade how much is truly at risk in a single trade? Many traders misunderstand this and don’t know their risk. Suppose you have a $10,000 account and you buy one lot of EUR/USD. Your Forex broker will set aside $1,000 in your account as a margin, so how much of your money is at risk? Many would say only $1000 but they are wrong. You have $9,000 to trade, $1000 was for margin. So your risk is $9,000 and you could lose up to this much before you receive a margin call from your broker.
No matter where you set the stop loss, the amount of money that you set aside with your broker as margin does not tell you anything about the risk unless you plan to get a margin call. Understanding these common money management pitfalls will help you a lot. Unless, you do not develop your own money management rules, you will most likely fall into one or more of these pitfalls.
Those rules are:
1) Live to trade another day, 2) Knowing how much to risk and 3) Knowing how to determine the trade size.
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