Hi all,
I’m currently learning forex, and now i’m at the money management topic, so i wanted to ask all of you about whether 1000$ is a good starting balance or not? giving that i’m from North Africa (Egypt) and we can’t afford 100000$ as a balance, so i wanted to ask what money management you recommend for me? should i trade standard lots or its going to be a huge risk? (i opened standard lots several times and won good pips on demo account), looking forward to hear thoughts from you all.
Hi there aboda, I think $1000 is a good amount to start with, its enough to start earning some good enough profit but not lose your house if you lost the lot.
With the correct money management and strategy, it would take you a long time to wipe your account.
I tend to only risk 1% of my account per any given trade that I take. Let’s assume 1% risk = $100, as a trader you need to make sure you’re profitable trades make more than $100.
If you plan to make $200 if the trade is successful, your risk v reward ratio would be -
- $100 risk
- $200 potential profit
- The potential profit ($200)/risk ($100) = 2
This means that the trade has a risk / reward ratio of 2:1
1% equals 100$ or 10$?
Some rules of thumb. At the end of the day, only you can decide what’s the proper money management. Cause it not only depends on risk, it also depends on you, your personal situation and what you’re trying to achieve trading.
If you could only pick one, which would you choose
- I want more emphasis on building capital then protecting my starting capital. 2. More emphasis on protecting my starting capital while building my account
- What’s your definition of 1. gambling 1. Investing
- Would you describe yourself as 1. slow and steady 2. fast and loose
If you ask anyone the above, they will all tell you somewhere in the middle, but the question is only pick one.
The trick with trading, is to make the same mistake the least amount of times as possible.
- is self-explanatory. Someone who is building capital may lean towards higher lot sizes such as 5 or 10% using shorter time frames, someone who is protecting may go to 1 or 2% and trade longer time frames.
- Gambling. My definition is betting, trading or however you want to describe it as executing without a detailed plan. My definition of investing is taking a measured risk (I love this term “measured risk”. Having a plan, working the plan, consistently. You have to decide where you fit. A gambler is someone who thinks trading is easy and you don’t have to put in the time to learn as much as you can. Look at an indicator and it will tell you how to proceed, or price, simply look at where price has been and trade on that. Measured risk is having a plan based that will potentially provide more positive than negative results. Placing your trades based on a sound money management plan defined by you. Then work your plan exercising discipline and patience
- Again self explanatory. 1. Slow and steady. First you crawl, then you walk, then you run, then you race. 2. Fast and loose. Skip: building a strong foundation, learning to crawl 1st, then walk; to right to run and plan to race. The first one knows it takes time to train for the race by learning forex basics, testing what you’ve learned and practicing. The 2nd one says open an account with minimal money and learn by trading.
That’s my opinion anyway, hope that helps Good Luck
Gp
Check thisout…
I hold this is the single-handed most important article every new trader should read & heed.
Good luck out there!
It does not matter which part of the world you’re from but just know that a demo account, more often than not, varies widely from a live account. You’re better off with a mini or micro account, until you start performing consistently and move to standard later on…
Hi Aboda, Have you written out your trading plan? Trading your first live account try a nano account to learn to deal with the psychology of fear and greed. Money Management? I trade 2% of account per trade and 5% of the profit from trading per trade, then every 3 months add the profit balance to account and start again. Do not trade standard lots the risk of ruin is too high.
1% can be anything, depends on the size of your account.
I mean’t $100 as an easy example which is 1% of $10,000
If you have $1000 account, 1% would be $10 (This is not the stake amount)
I don’t recommend longer time frames, because these consist of larger stop losses and with a smaller account, you can still keep the risk at 1% but your pip size would be tiny.
I have always used the 30 minute charts because that’s what suits me, its slow enough so you can still read the charts.
“1. is self-explanatory. Someone who is building capital may lean towards higher lot sizes such as 5 or 10% using shorter time frames, someone who is protecting may go to 1 or 2% and trade longer time frames.”
Gp[/QUOTE]
Why would you put 5/10% risk on a trade? If you want to gamble that’s just about the right amount.
Actually with 1000$, you can open most account in almost well-known brokers, except Vip accounts.
Take example:
FxPro minimum deposit is $500 and a Premium account in Hotforex also need $500 as an minimal deposit. Only PAMM, vip or group account need tens of thousand $. But with new trader, I recommend $500 to learn.
@aboda as others here have already mentioned, a standard lot would be a huge amount of risk to take with $1000 in your account. Your effective leverage would be 100:1 which means it would only take a 1% move in the market for you to lose all your money. Remember leverage magnifies both your gains and your losses.
If you want to make a career of trading, you have manage your downside risk, so you can trade for years to come. A key rule of thumb is to risk only 1% or 2% of your account balance per trade.
What was the virtual balance of this demo account? We’re guessing it was much more than $1000. Consider that if this demo account had a $100,000 virtual balance, and the floating losses were $1000, this would have represented a total loss on your $1000 real account.
If you were trading standard lots (100,000 units of base currency or 100K) with a $100,000 virtual balance, then this would be proportional to you trading micro lots (1,000 units of base currency or 1K) with a $1,000 real balance.
Consider trading micro lots, if you want to start live trading with $1,000. On this trade size, you’re risking about 10 cents per pip. That would allow you to risk approximately 200 pips per trade, if you want to risk 2% of your balance ($20), or 100 pips per trade, if you want to risk 1% of your balance ($10).