Hi Folks!
I am new to the FX scene, got intoduced by a mate of mine. I just completed my education with babypips!
I have this burning question and that’s about money management. I hear from some mate who’s an active trader. Now i haven’t started yet and before i do i think i need to find out more about money management.
Appreciate any comments. Thanks in advance
The Money Lover
Welcome to Baby Pips. I’ll jump right in here to answer your question. Money management is pretty simple. It is deciding How much of your capital you are willing to risk on any trade. It’s pretty much that simple. If you have XXX amount to trade with and you know you can’t afford to lose more than YY then you would set up your trade so that you won’t lose anymore than YY amount. Some people go into more detail and use percentages on their accounts, some trading strategies are even built around a % of capital per trade but it really is relative to the person. When you start with small capital it would be very hard IMO to restrict your trading to a % of your capital that those systems deem “safe” (which is also relative in the forex world). It has been my experience that the majority of forex trading, is directly effected by what you as a trader are comfortable with. From your trading system, market that you trade, and money management rules. There really isn’t a quick and easy answer to “what is right” when it comes to what you will trade, and how you will trade it, or how much you can stomach to risk at a time. Money management is EXTREMELY important but my rules or anyone else’s for that matter, can really only be taken as a guide. I hope my answer helps you in your journey, Happy Trading, Raven
First of all: I love your Nickname 
Actually there are several approaches to money management (or to be more precise: position sizing).
The most common strategy I have seen, is to take risks that represent a fixed percentage of your account (mostly 1%).
Another method is based on the average volatility of the security you are trading.
Sometimes traders take positions worth a fixed amount of dollars.
Position sizing is probably the most important aspect you have to consider in your trading and I suggest that you read one of Van K. Tharp books for further information.
An important element of money management to remember is to stick to your rules.
Just because the stars are aligned just right, the moon is in the east, a palm reader has said today is your day and every indicator ever created is saying BUY BUY BUY it doesn’t mean you should suddenly risk 50% instead of your normal 2% - sometimes the price just doesn’t do what you expect!
Likewise, don’t go chasing a closing % value just because you’ve lost some trades (ie, if you lose 3 x 2% account size trades, don’t try and make your next trade worth 6%) - you’re likely to fail and dig a deeper hole. In fact, build into a system a point at which you say “[I]Ok, that’s enough for today - things aren’t going well[/I]” and go find something else to do.
Make a list of every single thing that could go wrong and determine how could you face the contingency, this should be the key for success� knowing how to react and face the unexpected.
Oh by the way my last comment is based on some of the basics taught by Van K Tharp
Hi Folks
Thank you all for your kind help. Yeah I am looking at coming up with some fixed % rule. So i can only trade say 1% of my account. But the thing about it is that with 1% it just seems so slow to grow my account.
What woulkd the best percentage to set maybe 5% or more?
Thk in advance!
It’s a slow grow, aye, but it’s a safe and steady grow.
Personally, I have a three tier system depending on the time frame I’m trading (I trade anything from 1 hour to 1 week charts).
As the longer trades are generally safer, as trends develop in a more solid manner, I’ll allow myself to trade 3% account size on them. The 1 hour charts can trade 1.5%.
Also, lower time frames yield more trades, so your account will grow.
Just remember, the money you make from trading will beat any savings account in the world. At first just look at it this way. When your account size grows nicely, say to �100k - then suddenly 1% return is �1000. And, normally, you’ll get back more in a winning trade than you lose in a losing trade (depending on your own personal money management plan).
Grab a calculator, or make an excel sheet, and see what 1% return per week is like after 5 years. It’s a substantial amount.