I am thinking starting with a $500 micro account. What size lots would you suggest that I start off trading with?
Your lot size should change per trade. It is a trade by trade basis. Figure out how much you want to risk. Recomnended is no more than 2% of your capital. Then find where you want to place stop and adjust lots accordingly.
Thanks for your reply! I don’t want to risk anymore than 2% of my account balance on any trade.
hello Esva, welcome to the world of forex.
2% a trade is fine. But you have to divide that risk in differten trades. You can start trading 4 trades of 0.5% each, or 5 trades of 0.4% each.
The reason i tell you this is because if you trade only 1 trade of 2% and you lose, then you are down 2% in the day. If you take another trade and you lose then you are 4% down in a SINGLE DAY!. So be careful, money management is much more than “risking no more than 2% per trade”. You need to establish first this:
How many trades per day
How many losing trades in a day
What percentage down per day will make you stop tradingfor the day
how many lossing days will make you stop trading for the week.
My advice is this: divide 2% on 4 trades of 0.5%, and only take those 4 trades in that day. If you lose then the next day, reduce the lots in half, that means 4 trades of 0.25%. If you lose again, then stop trading for the weel. If you win, then go back to the 0.5%. The key is to increase the size of the lots if you are winning, and to reduce the size when you are in a losing period.
Dont lose more than 2% in a day. And dont lose more than 4% in a week.
Hope that helps.
Gasanville has a point. I said that no more than 2% is recommended but you can obviously opt to use less. How much you risk comes down to a few factors like what was mentioned before, but also consider how many trades you are making per day (basically what type of trader you are). If you are making 5 trades per day, then I wouldn’t go over 1%. If you are making 2, “”"""" 0.5%. You get the point. I think with the capital you are using, unless you are making more than 5 per day, I would just do .5% of your capital per trade. That way you can actually be happy with the profits (if you make them) of ~$2.50. Any less and you may not take it seriously enough to really progress.
If you have no system or are unsure your system is profitable, trade the bare minimum. On Oanda, that would be 1 unit of currency. If you have an understanding of your system’s risk profile, trade whatever you/your system can stomach.
I used to a proponent of the 2% rule but really that only applies if you haven’t rigorously quantified your system’s theoretical edge.