Like many, you may think that managing money is a fairly straightforward and easy-to-implement matter. However, it’s about something more than just managing your money and investing wisely. It is about a whole process of saving, investing, planning and spending generated capital. This also applies to controlling the use of company funds.
Money management in forex investment
Everyone practices money management in some form or another in everyday life, be it in personal life or in investment management. Successful FX trading requires a lot of discipline. You need in-depth knowledge of the basic elements that are necessary if you want to make long-term profits from this industry.
Inexperience or lack of basic knowledge of the trader is the main reason for losses in Forex. Neglecting the principles of your capital management increases the risk and results in reduced profits. The right capital management skills are therefore essential when entering the markets. The fxview broker review over the internet can help you manage your investment in forex trading.
Keeping in mind that profits always come with risks, here are a few principles:
- Practical experience in determining position sizes
- Identification of trading risks
- Analysis and evaluation of these risks
- Developing solutions to reduce these risks
- Constant adoption and elaboration of these solutions
Determining the right positions or position sizes can be done in different ways. However, no matter whether they are simple or complex, they should be optimally suited to your trading platform. This allows you to easily manage both winning and losing trades.
Models in forex trading
Fixed Lot Count
A great way for newcomers to start their trading career. Here, traders act with the same position sizes, which in all probability are kept very small. Lots can be changed during trades depending on whether the account balance increases or decreases during the trading period. Balance is very important in the beginning. Keep it low for now and use 2:1 leverage. This way you can steadily increase potential profits over time.
Percentage of Equity
The idea behind percentage of equity is based on the size of your position. This in turn is based on the percentage change in your equity. You can always increase the percentage of equity from trade to trade. It must be mentioned again that the risk increases with increasing profit opportunities.
Continued percentage of equity through stop loss
The method behind this technique is to limit each trade to a portion of your account equity. This is often between 2% and 10%. This method differs from the Fixed Ratio method. It is designed to help increase your activity in the trading market while protecting your accumulated profits.