Money/Risk Management

This page is about a far to little discussed part of trading: Money/Risk Management. 


      I am not talking about someone managing your money, I am talking about using Money Management in your trading plan to determine your tolerance for risk. 


     Hopefully this will give some new traders out there something I never had the benefit of being told when I first joined these shark filled waters known as the Foreign Exchange.




Baby Steps to Finding out your Tolerance for Risk:

Step 1: 

Open a forex demo micro account that trades .01 lots.

Step 2:

Create a starting balance of $100

Step 3:   

Learn to trade using 1% as your model for risk. This will help assure you dont take too large a loss all at once. On a micro account .01 lots will equal 1cent per pip, so 100 pips is 1 dollar or 1% of the balance.

Some might say or ask why bother with 100 dollars, it is simple really: this a number we can easily wrap our psyche around.


The chances of getting a Margin Call using these rules is greatly reduced, but not eliminated. Trading involves a great deal of risk and should only be done in demo until you have the risk capital to afford to lose all of your deposit. This post is only intended as a guideline and is a relation of my personal experience and should not be taken as the only advice out there or used to trade without professional experience/advice or direction. This can come either from personal experience or consulting with trading professionals or taking education courses. It is a decision one ultimately has to make for themselves. The biggest enemy a new trader has is the desire to make money fast and thinking that they can trade with money they need to pay bills with .The biggest little dirty secret that no one ever gets the chance to learn without having to take the School of Hard Knocks is that most brokers allow one to open accounts that  are over leveraged and underfunded. If you have a minimum micro lot trade size available of .01 lots with 50:1 leverage you should have at least a $100 balance as a starting point.