What is the main reason to trade forex? Some may say, I have a lousy job and forex trading offers me better quality life and flexibility while some say I trade forex to fill up my spare time, but ultimately, trading forex is to make money. So, forex trading is all about money making and hence, money management should play a significant role here.
In forex trading, money management is about controlling the flow of one’s money. Forex trading is considered as a speculative investment, thus, the risk involved are high. High risk means high returns as well as high losses. That is the reason experts created or designed strategies to reduce the risks and turn the risks into a trader’s favor.
The first question to ask in money management is how much should I allocate as the start-up capital to start forex trading? It is, of course, not advisable to use up all the money in the saving accounts, let alone getting a loan, to start trading forex no matter how lucrative forex trading offers. Instead, budget an amount that will not hurt your pocket. If things were to go in the unfavorable direction, that is the maximum loss and not more. Allotting more funds than you can stomach leads to a more stressful trading as the fear of losing predominates the aim of learning. As the fear sets in, the sense of rationality and logic is markedly reduced, and rashness takes over. This is where, wrong decisions on the entry and exit points while trading were made more frequently.
Set your goal to gain profit consistently instead of unrealistic ones such as expecting a huge earning overnight. One of the main goals in trading forex is to be able to survive trades after trades and not burn the capital after a couple of trades. Consistency in profit taking builds confidence and control.
It is also crucial to learn to protect your winnings. More often than not, a trader’s fall is due to emotion. For instance, after winning a trade, do not be too ecstatic and irrationally or hastily placed a losing trade. It is also essential to know how much loss to risk for each trade. It is only proper to risk a small percentage of the starting fund. Risking a modest amount enable a trader to remain in the trading domain as again, the goal is consistency rather than hitting a pot of gold.