Global Forex Trading: How To Manage Your Money

It is easy to demonstrate that money management in global forex trading is for more important then analysis. A total lack of money management would mean risking every thing on any one trade.
You might have the best analysis system in the world and 99 straight trades right but that 100 trade would wipe you out. On the other hand you might have the worst analysis system in the world. If so, a proper money management system will reveal this fact while at the same time minimizing the risk to your capital.
So if you get 10 straight trades wrong you still lose only 10% of your capital! It is therefore immediately clear which is the more important.
Money management is what makes the analysis/system work, not the other way around. Learning to trade in a demo account is necessary, practicing is necessary, but when you start to play the game for real everything changes, if only because you start to hit emotional/psychological problems you never even dreamt existed.
These problems can be overcome but when you enter a new arena (i.e. actually trading your new system/approach) then you must minimize your risk – indeed good traders minimize risk at all times. So you don’t trade 10 lots, you just trade one or you don’t trade even 1 full lot, you trade. 1 mini lot. And you keep trading just one until your actual results confirm that you should increase position size. demo account is necessary, practicing is nenot the other way around. inimizing the risk to your capital.
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At that point your area of risk (new territory) has become more quantified and you can move a head a more relaxed trader. It would then make you to increase position size in appropriate steps. If your system had some flaws then you do not lose all your capital and you also develop some discipline along the way. What do you stand to lose? Just a little time. If all goes according to plan you may well be trading at the size you originally wanted to just a few months later.
Here’s a simple table risking 5% in a mini account with 400:1 margin:
1. If your account is $5,000 – trade using only 1 full lot – your risk = $250
2. If your account is $4,000 – trade using only 8minilots – your risk =$200
3. If your account is $3,000 – trade using only 6minilots – your risk =$150
4. If your account is $2,000 – trade using only 4minilots – your risk = $100
5. If your account is $1,000 – trade using only 2minilots – your risk = $50
6. If your account is $500 or less – trade using only 1minilots – your risk = $25.
We highly recommend that you only trade 5% - 10% of your usage margin no matter how large your account is. Once you have become a successful, proficient, consistent trader, then and only then, should you risk 10% of your account on one trade, and never more than that.
get the part 2 of this article on my site.