This entry was posted on Tuesday, December 20th, 2011 at 3:38 pm and is filed under Trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Volumes of Forex trading exceed 4 trillion dollars a day. Forex brokers can help to invest in foreign exchange market almost anyone willing to obtain benefits. Hot-eyed and hot-blooded beginners often rush into trading in an eager for a desirable piece of cake. The purpose is quite understandable, though difficult to reach if you are unaware of basic rules. These rules are related to the art of money management.
You will increase your chances for successful trading by using well-checked trading algorithms, calculating possible results and trying not only enrich but also save your money. For a couple of loss-making trades may deprive you of the whole deposit, a size of losses is often more important than of profits. Beginning traders often watch their expected profits turning to substantial losses. The reason is that they cannot get to close positions ahead of a good deal of money. If they use a margin, they face even worse disaster. Self-confidence and market’s favour are questionable training wheels. It is better to aim at small but constant profits and work out a strategy and follow it.
You will definitely need some time to elaborate a strategy. Who says it would be an easy score? Start with demo and then try a cent account. Go to a classic live account after that. I would not recommend you to begin with a margin for any misfortune may deprive you of the whole deposit.
Trading with fixed volume is an easy way to manage your money. Set a fixed limit (e.g. 0.5 or 1 lot) and trade within it. Do not open numerous positions at a time. Even if this strategy will not give you extra profits, you will save most of your money and get a foot in the door to solid profits. Always analyze results: make some calculations, monitor charts and study the market. Find mistakes and try to fix them. If the results are positive, you may increase the volume of trade and use a minimum margin.
Another method of money management is to choose a part of deposit you are ready to risk. For example, 5 per cent for a trade. An advantage is that you will have the same risk portion for all trades. By increasing your deposit, you will be able to raise a volume of trades and reinvest the money including profits. However, it is not recommended to invest more than a half of your deposit.
Contrary to self-confidence, self-discipline is essential for Forex trading. You should know exactly where to enter and exit the market. Set up stop loss levels and move them if the market favours you. Close positions if you got the profits you expected. Close positions if your losses reached the limit. Control your emotions. If you failed and suffered from stress, take a time out and have a rest for a few days.
Later you will know how to diversify risks and elaborate the most appropriate trading and money management strategy.
Added by Evgeny Galaev,
Chief Manager of InstaForex Client Relations Department