Posts Tagged ‘money management’
Volumes of Forex trading exceed 4 trillion dollars a day. Forex brokers can help to invest in foreign exchange market almost anyone willing to obtain benefits. Hot-eyed and hot-blooded beginners often rush into trading in an eager for a desirable piece of cake. The purpose is quite understandable, though difficult to reach if you are unaware of basic rules. These rules are related to the art of money management.
You will increase your chances for successful trading by using well-checked trading algorithms, calculating possible results and trying not only enrich but also save your money. For a couple of loss-making trades may deprive you of the whole deposit, a size of losses is often more important than of profits. Beginning traders often watch their expected profits turning to substantial losses. The reason is that they cannot get to close positions ahead of a good deal of money. If they use a margin, they face even worse disaster. Self-confidence and market’s favour are questionable training wheels. It is better to aim at small but constant profits and work out a strategy and follow it.
You will definitely need some time to elaborate a strategy. Who says it would be an easy score? Start with demo and then try a cent account. Go to a classic live account after that. I would not recommend you to begin with a margin for any misfortune may deprive you of the whole deposit.
Trading with fixed volume is an easy way to manage your money. Set a fixed limit (e.g. 0.5 or 1 lot) and trade within it. Do not open numerous positions at a time. Even if this strategy will not give you extra profits, you will save most of your money and get a foot in the door to solid profits. Always analyze results: make some calculations, monitor charts and study the market. Find mistakes and try to fix them. If the results are positive, you may increase the volume of trade and use a minimum margin.
Another method of money management is to choose a part of deposit you are ready to risk. For example, 5 per cent for a trade. An advantage is that you will have the same risk portion for all trades. By increasing your deposit, you will be able to raise a volume of trades and reinvest the money including profits. However, it is not recommended to invest more than a half of your deposit.
Contrary to self-confidence, self-discipline is essential for Forex trading. You should know exactly where to enter and exit the market. Set up stop loss levels and move them if the market favours you. Close positions if you got the profits you expected. Close positions if your losses reached the limit. Control your emotions. If you failed and suffered from stress, take a time out and have a rest for a few days.
Later you will know how to diversify risks and elaborate the most appropriate trading and money management strategy.
Added by Evgeny Galaev,
Chief Manager of InstaForex Client Relations Department
It is at least imprudent to start trading on Forex not making strict rules and getting wise to the trading basics. Look before you leap – or so much time and nerves will be spent to no purpose. Before being flush with money right and left it is better to get insight into capital or money management.
1. Look for alternatives
- Look for beneficial investment objects, fish for information and keep in touch with professionals. Do you want to earn profit? Make efforts! Learn opinions, ratings, brokerage companies’ websites. The opportunities of a modern trader are wide enough and in order to embrace them you should know about them first.
2. Start from scratch
- Stock exchange investors use the averaged investment method which means the security papers purchase for the same amount of money in equal time frames. It helps to set limits and avoid serious financial slips. There are cent accounts on Forex, serving as a safe point for start.
And certainly, you should not rush to open a real account – have practice on demo accounts first.
3. Do not put your last money at stake
- Any investments are related to risk somehow, that is why the market environment is variable. Do not play with money which you cannot afford to spend. Remember why you came to Forex. Not for blowing off all your capital for sure.
4. Remember: the higher profit – the higher risk
Risk and profit are proportionally related to each other. It should be taken into consideration when forming an investment portfolio.
- Running trading on Forex, think well about the leverage usage provided by broker. Leverage will advance your financial options, and in case of success you will benefit from the whole amount deposited, but in case you lose – you risk blowing off all your funds.
5. Diversify risks and observe the fixed limits
- To continue the previous point, it should be emphasized that for reducing risks it is reasonable to use different investment tools. Moreover, the experts recommend applying not over 50% of funds available and involve 5-10% of them in one trade.
- In a currency market it is important not that how much you earn, but how much you manage to save while you trade. Apply “Stop loss” and “Take profit” instruments to protect your capital.
6. Develop your own strategy
It is better to have a bad strategy rather than none. In addition, all your decisions should be conscious; you have to comprehend market changes and your actions. If the events do not follow your scenario it is better to stand back for awhile. It is also essential to determine your opportunities and goals: what amounts you are ready to invest, how much you are ready to put at stake, and if there is a place for adventurism in your plan?
- To sum up – a piece of advice. Never invest the money you borrowed. It is always risky. Do not put money being influenced by emotions or giving way to somebody’s opinion. Also remember that excessive self-confidence will bring you no use. Always be aware of your rights and duties.
Added by InstaForex Staff
Popularity of Forex market is growing from day to day and due to development of the Internet and modern technologies currency trading became available for everybody. Thereby, many people with lack of experience and knowledge came to the Forex market. However, sooner or later every beginning trader faces the necessity of learning the basis of currency trading. So books about Forex will teach traders the essence of currency trading on the international currency exchange market Forex.
At present day, Internet carries a great number of literature on Forex trading – these are books on fundamental and technical analysis, books on the psychology of trading, books on capital management and so on. Thus, not only the beginning but also the experienced traders have a huge variety of literature on Forex to choose.
Below let us discuss a few categories of books on Forex, why they are useful and what every trader can find useful in them.
The books on fundamental analysis comprise the literature on economy, which dwell on different financial sides of not only Forex market but the whole global economy. Though not all books on the economy will be identically helpful, you should select only those who are destined for traders.
It is necessary to remember that in the process of trading not all traders keep to fundamental analysis. However, those traders who do, will have a handicap as due to the fundamental factors the international currency market starts to move more often. From the stated above it follows that even those traders who do not adhere to a based on fundamental analysis trade should definitely study the books on Forex fundamental analysis.
The books on technical analysis
The books on technical analysis are most popular among novices of the market. This happens because technical analysis is easier and in simple words deepens a trader into the principles of Forex trade. Exactly with reading these books the majority of traders begin their Forex work. Nowadays it is possible to find plenty of books on technical analysis in the Internet. Though there exists one disadvantage, connected with applying this analysis in trading process. Most part of the available books are too old, so a trader will not get the desired effect. Nevertheless it does not mean that technical analysis should be avoided, simply every trader using technical basis for operating on Forex should modify the applied strategies for himself.
The books on trading psychology
This type of literature should be read by absolutely every trader irrespective of his experience on the market. As it is psychology of a trader’s behaviour which can determine the traders correct actions and the correct schedule for the working day with no harm to health and your funds. Very often traders are making actions not in the accordance with the situation on the market but overwhelmed by emotions. The books about Forex psychology will teach you how to suppress your emotions without letting them into your trade.
The books on capital management
This section of Forex literature is very important and it cannot be omitted. Every participant of the market should study the books about managing the capital. These books help a trader to work out the maximally profitable and correct trading strategies. Moreover, this type of books is significant also because in the Internet there is not so much information devoted to capital management and reading it will not take much time.
Absolutely every participant of trade irrespective of his experience on the market should practice self-education. Analyzing Forex literature together with permanent practice will make your trading profitable and exciting.
Many of the described above sources of information can be found on the educational website of InstaForex Company – www.instafxeducation.com. This is the largest Forex library in pdf-files.
Added by Olga Vitkovskaya,
InstaForex Clients’ relationship manager