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Money management in the Forex market - tips to be a successful trader



You probably know that the competent distribution of capital for the implementation of the planned transaction has a great impact on any financial activity. Special attention to the issue of money management should be paid to the Forex market as well. In this article, we will analyze in detail all aspects of proper money management in the foreign exchange market.

So, the right money management strategy allows the trader to make a stable profit, and in case of losses, to minimize them and keep his deposit. This, in turn, will allow you to continue working on the exchange. Money management in Forex will also prevent a trader from succumbing to impulsive impulses and emotions, and then incur losses. Various money management techniques allow you to conduct a break-even activity on the exchange and at the same time do not regulate strict rules regarding entry and exit to the market.


It is a successful trader in the foreign exchange market that is one who conducts a break-even trading activity using a well-chosen money management strategy, as well as using a variety of trading techniques (trading strategies, forex patterns or other technical figures and tools).

The correct application of the rules of money management in Forex is the foundation for stable and profitable trading. Without their observance, trading in the foreign exchange market turns into a casino, and at the same time, any trading system will sooner or later drain the trader's deposit.

In trading, risk can be controlled by intelligent restrictions. Therefore, the goal and main function of money management in Forex is to minimize the risks of possible losses in trading.


Optimal money management for a beginner trader

Let's now take a look at the key rules of optimal money management that any trader (especially a beginner) should know and strictly follow:

  1. A trader, at the initial stage and in the future, should not open more than 1-3 deals.
  2. Each open deal should not exceed 2-3% of the total deposit amount.

For example: If your deposit is $ 1000, then 2-3% of this amount will be $ 20-30. Compared to $ 1000, this amount is insignificant, which means you can trade without worrying about small losses.

  1. If you open a deal using advisors, then the amount should also not exceed 2-3% of your deposit (you must specify the appropriate parameter in the settings of the advisor you use, which is responsible for limiting losses).
  2. Control your risks on transactions! If you enter the market with a package of transactions, the amount of these transactions should also not exceed the same 2-3% of the total amount of the deposit.
  3. Always protect your trades! For each open position, be sure to set stop loss and take profit orders, which will minimize the losses of the deposit. Various changes in the currency exchange can lead to a trend reversal and lead to unprofitable results for an open transaction.
  4. Take profit should be set 2-3 times more than stop loss (as one of the effective ways to set the level of taking profit).
  5. Keep your profitable positions as long as possible, and get rid of unprofitable ones immediately. Losing trades should always be closed earlier than profitable ones.
  6. Diversify your capital. This is the best way to preserve and increase it. Distribute your funds in several markets of different groups at once. On Forex, there are 4 main markets in which exchange rates behave similarly, these are: the zone of the dollar, euro, yen and pound sterling.
  7. Use multi-element trading using manual trailing stop tactics, this is a great way to protect your deposit, lock in breakeven and at the same time stay in the market with a profitable open trade, which will allow you to get the maximum profit from trades in general.
  8. Leverage is quite attractive for a trader. You can make money with it, but not using it correctly can result in losses. Many professional traders agree that the ideal leverage is 1: 100.
  9. Always control your emotions and do not make hasty decisions.


Other popular money management strategies in Forex

Experts assess the effectiveness of various methods of capital management in different ways. Below we will consider some of them. So, in the Forex market, the following are the most common and popular money management strategies:


  1. Trading with a fixed percentage of the deposit

We described this method in the previous paragraph. A trader, when using the specified money management method, calculates a limit on a percentage of the volume of his deposit (for example, 2-5%). In proportion to the size of the trader's deposit, the transaction amount (the size of the open positions) changes.

In the same case, when the initial capital of the trader is small, trading with a fixed percentage is carried out on mini or micro lots.


  1. Fixed proportion trading

Also called the Jones method. The essence of the strategy is control over profitability and risks. The trader displays a certain value (delta), which affects the increase in the number of contracts (when this value is reached), as well as their decrease (if the delta decreases).

In terms of numbers, it looks like this:


Deposit - $ 500 add a delta - $ 500, which gives an amount of $ 1,000, which means that it is possible to trade with two mini-lots;


1000 dollars we add 1000 USD, which gives an amount of 2000 USD, which means that it is possible to trade three mini-lots already;

We get 3500 dollars. - 750 dollars. = 2750 USD, which means that now you need to remove one mini-lot.


  1. Martingale method

The essence of this money management method is that the size of the position increases with decreasing capital. There is also an anti-martingale method, the essence of which is an increase in the size of a position with an increase in capital. A pre-established percentage of the deposit volume or the number of lots are taken as a unit of decrease or increase.


  1. Best and Safe Share Method or Loss Percent Limit

This tactic of money management in Forex more than others contributes to obtaining the greatest income, because it limits the limit of losses allowed in a transaction. This method pays off if the indicators in the trading system are constant.


It consists in the trader's independent determination of the percentage (share) of losses for each individual transaction. For instance:

You can also limit by the amount of capital or by points.


  1. Increasing the lot after a certain method expires

In financial circles, After the trader has earned a certain percentage of his capital (or delta), you can add another lot after a certain period of time. A lot is added, for example, according to monthly results or quarterly, or otherwise.


Having weighed all the advantages of these tactics and money management strategies in the Forex market, you can determine for yourself the only one with which you will achieve the best results.





Published on: 9/19/20, 12:00 AM