Efficient money management

[Gee Dee]

Efficient money management can help any foreign currency exchange trader to avoid untoward risks related to trading and can help him to minimize his losses. And such efficiency comes with experience and with passing year in forex. A trader must try to work with consistent approaches that can lead him a support in maintaining his profit stream in a better way however, maintenance is easier when a trader has basic understanding. 
 

 

[CarlosNorb]

The following two rules are critical to any Forex trader. Make sure you understand them fully before going on with the remaining points.

 

Risk-per-trade

 

Risk-per-trade refers to the maximum amount of risk you’re taking per any single trade. Risk-per-trade is usually determined as a percentage of your trading account size. Let’s say that you have a $10,000 account. If you open a trade with a potential loss of $2,000 (the maximum loss if the trade hits your stop-loss), then your risk-per-trade would be equal to 20%. This example shows how not to trade. Taking a 20% risk-per-trade is way too much risk, as a strike of five losing trades would wipe out your entire account! Even two losing trades would leave you with only 60% of your initial trading account size, and guess what – it takes much more than 40% to return to your initial account size of $10,000. The following table shows how much you need to make to return to your initial account after a series of losses.

 

Amount of balance lost

Amount necessary to return to initial balance

10%

11%

25%

33%

50%

100%

75%

400%

90%

1,000%

 

 

As you can see, losing 90% of your account balance will take a whopping 1,000% growth to return to your initial trading account size. Looking at international Forex tips, the golden rule is to have a risk-per-trade not larger than 2-3% of your trading account size.

 

Reward-to-risk ratio

 

The next important concept in money management is the reward-to-risk ratio, also called the R/R ratio. This refers to the ratio between your maximum loss on a trade, and your maximum profit on a trade. Both categories can be simply determined by your stop-loss and take-profit levels. If your maximum loss on a trade is $100, and your maximum profit is $100, your R/R ratio would be equal to 1. But, if your maximum loss is $100, and your maximum profit $300, your R/R ratio would now be 3.

 

 

A large survey made by a Forex broker concluded that traders who have R/R ratios higher than 1 tend to be 30% more profitable than traders with R/R ratios lower than 1. In fact, the best trades are those with R/R ratios of at least 2.

Why is this so important? Let’s say you open six trades, each with an R/R ratio of 1 and identical risk-per-trade. If you manage to have three winning trades and three losing trades out of the total six trades, you’ll make a total of $0. You’ll stay on break-even.

However, if all of the six trades have R/R ratios of 2 (assuming identical risk-per-trades), three losing and three winning trades will now generate a handsome profit, because you’re winning two times more on each winning trade than you’re losing on each losing trade. This is the power of reward-to-risk ratios, making it a crucial part of a well-rounded Forex trading money management system.

[bearhugs]

Agree, a good money management strategy is more helpful to handle the trade and to convert the trade to real profit, which everyone wants to see. Trading is risky but using few tricks and tips it can be profitable too.

[Maskers]

You are absolutely right! Such good advice. I would like to add one more link https://topbrokers.com/forex-webinars If you are doing trading this text is must be read. You know, we should always take a lot of things into considerations. 

[lal.remigiusz]

it turns out that it is a more efficient way than just waiting for a computer, but still can get high profits.

[Sininfinity]

it turns out that it is a more efficient way than just waiting for a computer, but still can get high profits.

 

Different traders have different approach towards the market. I personally don't judge anyone on how they trade. As long as they are making profit, that's all that matters.

[bearhugs]

It is always good to have a good strategy that can support you for your money management. In Forex, every concept is having its own value and importance so it is always better to use them with proper understanding.

[Namu]

To be able to generate maximum profit, of course it requires a process and we must be willing to try to hone trading skills in order to get maximum trading results. we can try to routinely trade real accounts using capital in a freshcent account

[bigxy]

On 4/6/2019 at 7:22 AM, bearhugs said:

It is always good to have a good strategy that can support you for your money management. In Forex, every concept is having its own value and importance so it is always better to use them with proper understanding.

According to warren buffet's money management rules are very simple, the first one states.. never loose your money and second never forget rule number one.

[Latham Lapard]

It is for important to do Risk/money management right because that’s where your safety comes in. I find it incredibly easier via FreshForex broker using 101% Tradable Deposit Bonus, as it’s something to really help with performance and allows with making one comfortable.

[bearhugs]

We all want the same that we never had loss in Forex but the reality is, we face loss most of the time because of many reasons. To stop this we have to follow the rules, that can help us to improve our trading.

[uncle gober]

the experience should be able to be considered well, this is done so that traders can become more leverage in survival and can manage funds and risks that exist and have the opportunity to become a trader of the month Tickmill.

[Baazex]

In order to succeed in trading you need a trading plan, in other words you need a business plan you have to be very focused on that what do you need to implement your strategy and how do you intend to carry out your plan.