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How to manage capital on Forex market?
Written by: PaxForex analytics dept - Monday, 10 November 2014 0 comments
While working in the financial market Forex, you should be able to adequately distribute your capital to calculate how much cash should be involved in the transaction for profit. It is equally important to have a clear definition of the total amount of money you are ready to put on the risk map.
To address these issues, there are certain methods of money management.
The absence of any method for managing capital
It sounds paradoxical, but this method also has the right to exist. Many Forex traders, opening orders, do not plan any size used in the operation of funds, nor the exemplary gains or losses. This tactic applies to accounts with large deposits but if you have a little capital, then you really run the risk of losing it.
When you open multiple positions in the Forex market for various instruments, such as EURUSD and EURGBP, in the case of price movement in the right direction, the trader can profit from these transactions. Both profits and losses in this case can be considerable.
A fixed amount
Depending on the amount of funds on his account, a trader decides what volume of funds he is willing to risk opening a particular position. In this case, the trader enters into a transaction not exceeding his own limits.
This method is similar to the previous one with the only difference that the trader defines not the amount but the percentage of his capital.
The ratio of wins and losses
It is imperative to own all the statistics on the transactions (the number of failed transactions, successful and their relationship). By making this kind of relationship, a trader after a string of failed transactions increases the volume of its position in anticipation of a quick win, or reduces it if the probability of an unsuccessful transaction is large enough.
Moving average equity curve
Many traders, who love to draw a deep knowledge of the financial markets, are familiar with the method of moving average as a signal to the input or output from the market. Here, moving averages (short and long) are used to determine the results of the transactions.
If the shortest curve will be above the long, it indicates that you should open trading positions, and they are very likely to be profitable. If the curve is below the short length, you should wait for a better time for opening a position.
Choosing for yourself a right method of money management for trading in Forex market, you will use financial resources more efficiently and, therefore, can not only protect your deposit but also increase it.