Growing your trading account into something respectable can seem like quite a daunting task if you are new to trading. The proper application of money management gives a forex trader an account growth edge, while trading forex without a logical money management strategy typically amounts to little more than gambling. This explains why forex risk and money management practices remain an essential part of the business that needs to be incorporated into every forex trading plan.
As interest in the currency market has quite recently expanded into the retail sector, the need for educating novice traders on the use of appropriate risk and money management tactics has also grown substantially. The benefits of learning about and applying the well-established methods of protecting one’s trading capital are considerable since they can really make the difference between a successful forex trader and one that quickly sees their trading account funds disappear.
In fact, the main reason why novice forex traders fail to grow their trading accounts is due to their lack of understanding or failure to apply proven money management principles to their trading endeavors. Accordingly, proper risk and money management techniques need to be understood and consistently practiced by any forex trader who wants to grow their trading account and remain in the currency trading business over the long term.
Trading successfully in the forex market typically means growing your trading account by wisely managing profits and losses using a sound forex money management strategy. Although wisdom typically grows with experience, most currency traders would tend to agree that profits taken should typically be larger than losses taken, which is the essence of the old adage that advises traders to “cut losses short and let profits run”.
Every forex trader looking to grow their trading account should be using a forex money management system contained within a trading plan that objectively lays out their goals and how they intend to manage their trading activities. The forex market can be quite volatile at times, so having a detailed set of forex money management rules allow you to know in advance how you intend to size a position, limit losses and take profits.