Money management

Hello everyone
This is my first post,and I’m a beginner in forex.
So , my question is About percentage to use in each trade.
Example: My account £500
Each trade will be 1% £5
Take profits will be 2%
Now is my doubt
My stop loss will be 10% 20% 30% of my £5?? Or we do in different ways?
Sorry this silly question but for me money management it’s very important.
I appreciate if traders with experience can give me some information and nice advices:)
Thank you

Hi liverpool,

I’m beginning to think that it doesn’t really matter what your Risk reward ratio per trade are.
So long your profit factor is 2.0 and above at the end of the day.

" Profit Factor: The profit factor is defined as the gross profit divided by the gross loss (including commissions) for the entire trading period. This performance metric relates the amount of profit per unit of risk, with values greater than one indicating a profitable system. " (Investopedia)

But isn’t this profit factor metric purely a measure of historic performance to date? Does it not just indicate whether your risk level is satisfactory or too high?

This is certainly important but it only warns when one should review the level of risk based on previous results but does not tell you what you can/need to actually do to improve it? Therefore only provides part of the equation?

Or have I misunderstood its function?

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bro risk reward are matter who said is not

no your stop loss will be 1 % of your account size , or fixed amount like you said 5 $ per trade[quote=“liverpooltmpl, post:1, topic:128000”]
Sorry this silly question but for me money management it’s very important.

yes important to know

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Hello, welcome to this prestigious forum. What you are specifically talking about is not money management in fullest. And you can’t specify such predetermined risk return ration as market will frequently change here. So your position with respect to risk will depend on your trading requirements in a specific market change.

Maybe you are right, just part of equation. Honestly, i don’t really know anymore. Truthfully, for me it seem impossible to achieve even close to 1:1 risk reward ratio per trade. Many times there is drawdown and more often than not. Sometimes i average it. Sometimes after long periods of drawdown price return to my entry position or close to it. I would close it, if my technical or sentiments analysis say so. If i were to add up all the drawdowns vs returns per trade. It will never be 1:1 RR ratio. Unless i took only trades that actually actualised as a lost or a win trade. Then doesnt that mean, it is only the profit factor metric that really matters?

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I suspect this situation may be more symptomatic of trading style rather that purely difficulty in achieving a rigid risk/reward parameter. If one is looking for a large number of trades with small profits and tight stops then it is easy to imagine that achieving a consistent ratio is difficult. Whereas a longer term swing or position type trader may find it much easier to place trades with such fixed ratios.

I would certainly never admit this in public on a site like BP, but, shhhh, I don’t actually look at any metrics whatsoever! :scream:

I assess my trade entry quality thoroughly and only enter when completely convinced and put my stops wherever it makes best sense (which cannot, by definition, be too out of line with my profit expectation because it wouldn’t then be a quality trade).

My money management tends to focus on my progress per week and per month rather than ratios and percentages but that becomes almost intuitively automatic with experience - like adjusting one’s speed according to the road conditions…

I am certainly not recommending this approach to anyone but I think it is wise not to place too much rigidity on applying and interpreting ratios and metrics.

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It is certainly not silly. It is the key to optimising profitability whatever trading method one adopts.
But there are many views and styles concerning stop-losses. For example, a simple 20-pip limit/10-pip stoploss. Others may prefer a distant stop which they intend never to get hit in normal circumstances (exiting their trade on an exit signal only) unless an unexpected event occurs and the damage is then limited to a maximum that one wants to loose on any trade.

Others may have no limit level at all and will run the trade until it eventually gets stopped out. They will adjust the stop as the trade develops.

The stop loss parameters can be tailored to match the kind of profit expectation your trading style anticipates.

I appreciate all yours answers. Thank you everyone

No, it’s not a silly question. If you risk 1% maximum, your stop loss should be 5£. Take profit will depend on your risk reward ratio. If it’s 1:2, take profit will be 10£. But don’t place your stop loss whimsically. Check support, resistance and market trend properly.

But sorry again. But I place my bets with £5 , my stop loss will be £5 ? So I don’t need stop loss. It’s 100% of my stake. I know it’s something wrong here and I’m not thinking correctly.

Dear brother, first of all you have to know that what effects in profit. In the trading period profit factor is known by calculating the gross profit divided by the gross loss. If it is the real picture of profit fact then you don’t need to be worried about the risk reward ratio. Also the risk reward ratio you are saying that 1: 1 is quite impossible for a trader to get.

The way I calculate my Stop loss is that the total loss will be the value of the trade. For example:
Account: £500
Trade: Short EURUSD @ 1.19215 (price correct 11:16 AM London time 9/1/18)
Stop: 1.20015
Take profit: 2 x stop (2:1 or 2% to 1%) = 1.17615

Value of loss if Stop loss hit = 1.25% risk with 0.01 lots @ 1.20015 = £6.19
Value of profit at Take profit = £12.35 if TP target hit at 0.01 lots (1.25% risk)

I used 1.25% as the smallest amount of lots I can trade is 0.01, which on this pair equals 0.01 lots, just a little over 1%.

Trading with a smaller amount of capital like this, a micro or cent account would be advised to work more accurately with sound money management principles.

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This simply isn’t so at all.


I do the same :yum:,

You can never get an exact R:R ratio and if you think the market will display your perfect so called risk reward, it’ll happen 1 out of 10 trades, pretty bad probability. I just take what the market gives me :grinning:

The way I trade is to consider what the market will offer me, likely. I will base my decision on my trading idea of the market movement then consider the position size required to match my risk reward. I don’t have a set risk reward ratio because not all market movements have the same impact and therefore accept anywhere between 1:1 to 1:3.

My main priority is to fit my stop loss to my risk limit of less than 1% per trade. If I achieve this and most of my trades are winners then I don’t have to worry too much. :grin:

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It is good to have some hesitation in taking risk we rarely succeed as we imagine. Stop loss is placed to manage our risk it is very helpful in money management. Right lot size , time of trade and many other things count in trading. Our plan should be there to manage account as market moves.