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Forex trading money management
Written by: PaxForex analytics dept - Sunday, 02 March 2014 0 comments
Trading the forex market is very risky and brings the possibility of losing money anytime you enter a trade. Anyone serious about trading would do well to incorporate money management techniques to their trading to protect their portfolio. Nearly all successful traders use a money management strategy along with their regular trading plan and if you have ever experienced a severe drawdown on your account you probably do too.
Despite the fact that most traders are fully aware of it, it is a curious notion that many traders seem to ignore money management all together or pay very little attention to it. The fact that most traders lose money in the markets is not really surprising if you consider that most of them also have no money management plans and mostly ignore the fact that they can lose money on any trade they will enter.
You should clearly understand that good traders are first of all skillful survivors. Those who also have deep pockets can additionally sustain larger losses and continue trading under unfavorable conditions, because they are financially able to. For an ordinary trader the skills of surviving become a vital "must know" requirement to keep
Trading currencies involves taking substantial risks no matter how you look at it. As a result putting funds at risk which you cannot afford to lose should never be considered by a responsible forex trader. This includes money needed for key housing expenses such as your mortgage, rent payment or the weekly food allowance necessary for your or your family’s sustenance. In general traders do better by only trading forex with funds known as risk capital.
Apparently there is a big difference between risking 2% and 10% of the account balance per trade. A trader who is risking only 2% under the worst conditions would lose a lot less of his initial investment. The same trader who had been exposing 10% of the balance per trade would end up losing a lot more of his initial investment. As you can see in this simple decision a money management approach can have serious consequences if misjudged.