Forex money management: Overview, stops and tips for beginners

You must have read or heard about money management in forex trading. However, most of you must have ignored it, right?

Forex money management is a vital concept for both beginners and seasoned traders. Even if you think that your trading strategy is the best and will lead to massive profits, you should not forget the fact that you cannot succeed until you have a robust risk management plan. So how to earn money in the forex market? How to reduce risk in forex trading? Which factors lead to profit in the forex market?

The key to all these questions and doubts is the Forex money management plan. So what is it, and how does it work? The guide contains everything you require to know.

What is forex money management?

Forex money management includes a specific set of rules and regulations that can help traders mitigate their potential losses, surge their profit size and expand their trading portfolio. Many traders, especially beginners, neglect this vital concept and do not include forex money management strategy in their forex money management plan. They end up risking their hard-earned money and even blowing their trading and back accounts with this negligence.

Top strategies for forex money management

Forex Money Management strategy #1: Never trade aggressively

Many traders lose money because of their aggressive nature while trading. A small mistake can lead to massive losses and can also eradicate all your hard-earned money. Every trade comes with some risk. Having robust money management plays a vital role in managing risk and avoiding aggressive and emotional trading.

Forex Money Management strategy #2: Make use of stop-losses

A stop-loss function assures that you do not lose a significant amount of capital on a single trading position. Also, it protects your money from sudden price shifts arising in the market due to some financial events. Risk is inevitable in trading. Chances of losing money always exist. Hence you should set a stop-loss function such that it does not exceed more than two per cent of your entire trading balance for a particular trade.

Forex Money Management strategy #3: Understand leverage properly

Are you trading on leverage? Or Are you thinking to take a leveraged position in the forex market? In both these conditions, it is vital to understand that leverage is a double-ended sword. It increases your losses also with profit. Trading on a high margin can be extremely risky.

Forex Money Management strategy #4: Learn and keep a trading journal

A trading journal is the best assistant while trading. It helps you to determine all your weak points in money management. Examine entries of your journal regularly and recognize recurring patterns which can result in losses.

Types of stops for money management in forex trading

Once you decide to trade with serious money management and allocate your capital, there are four major types of stock that you can employ while trading.

1. Equity stop: Equity is the simplest type of stop. The investor risks only a pre-decided capital of his or her trading account on a particular trade. The idea of equity stop is that you must not risk more than two per cent of capital on a single trade.
2. Chart stop: Technical analysis can result in numerous possible stops driven by several technical indicator signals and the charts price action. Technically oriented investors like to merge these standard stop rules with the exit points to make charts stops.
3. Volatility stop: The advanced version of the popular chart stop makes use of volatility rather than price action to fix risk parameters. It is very helpful in extremely high volatile conditions when prices cross a wide range.

The Bottom Line

You may now have understood how important is money management in forex market trading. These few simple and basic forex money management tips raise your standard from regular to a successful trader. Always remember to abide by these rules to reach better results.

They have immense potential to take your trade to the next height. The only thing you require is to practice some of its techniques and test their potential through a virtual or demo trading account.

You can get this virtual account for free with Brokereo. It is a top brokerage firm facilitating trading on assets such as forex, cryptocurrencies, commodities and several others. It provides several account types to pursue a trade, including demo, retail, professional and Islamic trading accounts.

Frequently asked questions

1. What is forex money management?

Forex money management includes a specific set of rules and regulations that can help traders mitigate their potential losses, surge their profit size and expand their trading portfolio.

2. What is the equity stop?

Equity is the simplest type of stop. The investor risks only a pre-decided capital of his or her trading account on a particular trade. The idea of equity stop is that you must not risk more than two per cent of capital on a single trade.

3. Where can I get a demo account for forex trading?

You can get this virtual account for free with Brokereo. It is a top brokerage firm facilitating trading on assets such as forex, cryptocurrencies, commodities and several others.

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