Firstly - did I read right that babypips.com School of Pipsology recommends you open a trading account with $50k-100k, and if you don’t have that, to start saving instead? Can I read there’s a discouragement of trading with less than this to open up an account, or is this just the ‘ideal’ scenario?
Secondly - in the Risk Management section - it gives a stark example of the difference between risking 2% of your capital account per trade and 10% per trade. In 19 examples, it shows a big difference (assuming you’re on a losing streak). I well understand this and it reinforces the need to limit exposure, accordingly!
My question is around specifically what is considered ‘risked’ on a ‘per trade’ basis. i.e. is your risk per trade the remaining equity in your account, is it the capital used/allocated to secure the position size, or both?
What I understood is that if say, I used 10% of my account to open a position - that capital used to open the position is ‘set aside’. On opening the position I then have the ability to set and place stop limits - and this is the specific risk of the capital account per trade, that the School of Pipsology is referring to.
e.g. let’s for example say I opened the position and it went backwards and hit my stop loss, but my stop loss was for 2% of my account capital - then I get my 10% back, right, but end up losing 2% of my account capital overall. So what was at risk - was 2% of my account.
To clarify - I just want to be sure - is opening an account position using my capital setting it aside, ever putting this capital at risk IF I have a stop loss on a position that has been opened? Or is that capital that is set aside, always safe, somewhat - assuming there are stop loss placements as part of the trade?
I’m quite new myself, but I’ve found many traders have different and unique methods. Regarding starting capital, it doesn’t HAVE to be that amount - it’s just ideal because obviously the more money you have, the more you can trade with and therefore more you can earn (assuming you can trade profitably and manage risk etc…)
In terms of how much risk to put on per trade, once again, each to their own. Some people say 2% per trade, and then any additional trades would be 2% of your remaining equity as you’ve described. However, if you trade a lot, you’ll find this value to always be changing and that’s why some traders used a fixed dollar amount of risk they’re willing to put on the line rather than percentage.
At the end of the day, there are a million different ways to do things - you just have to work out which way works for you, and can get you some profits at the same time.
+1 Great advice. Here’s a calculator you can play with to help you understand what happens. As ivanic said there is more than one way to approach not only risk, but every part of forex. At the end of the day you want everything you do in forex to be based on your particular circumstances, experiences and goals. Keep trying to learn as much as you can, and ask questions like you’re doing and before you know it, things will start to fall into place
Good Luck
Gp