It is a common sense that being a good trader means being good with the numbers. A trader needs to look after and monitor several charts, draw trendlines as well as keep a detailed track of his investment. A lot of work, right? But all these works get pretty easier to do when you have your money management mechanism.
When you were young, what did you do with your pocket money? Did you spend it all? Did you save some amount? Well, how much money you spent depended on what you wanted. If you wanted to buy an expensive toy, you might have to spend all your money on it. Again, if you were a ‘futuristic’ one, you might have saved your bucks for something better. However, no matter what you did with your money, this particular way of dealing with your bucks is money management.
When traders first join the trading industry, the first thing they look for is to ensure the security of their investment. Traders most often look for the best and most profitable options with the lowest investment. Whilst a solid analysis and good market understanding is very important to do well in Forex trading, the importance of money management is nothing less. In fact, t is one of the preconditions of making successful trades.
However, many traders often find it difficult to manage their investment when they first begin their journey. Inexperience, unwillingness to take risks, not choosing the right broker etc. are some of the reasons why many traders fail to come up with the best money management policy in currency trading.
However, since the Forex and stock market is highly volatile, it is an important activity for the traders to have proper money management to avoid the risk of losing their investments. Sign up for a free trial with Saxo and learn some basic risk management technique. For your better understanding, we will give you some classic tips which will protect the capital at the start.
Managing your risks
You must have heard traders saying, ‘I am willing to take a 2% risk on my trade.’ This means the trader is willing to take a risk of losing 2% of his overall 100% account. When you are trading in Forex, you need to remind yourself that you may lose any trade and it is completely okay. But you need to make sure that your loss is not potentially posing a threat to your investment and account balance. For that reason, a trader should always think carefully before deciding to take risks. Risks should never be greater than what you can bear to lose. There are several methods like stop-loss or risk to reward ratio to help the traders with their risk management.
Many traders get half-hearted to manage their investments after some time. This is one of the major reasons why many traders fail even after using a profitable trading strategy.
We know that money management can be a bit difficult to understand and pull-off when you are just starting. But there is no shortcut to success in Forex. If you are willing to one good trader then being consistent is your best option. So, make sure that you are being patient with your money while trading.
Don’t over trade
Many traders make it a habit to trade excessively after a while. When you get used to this trading work, it is still important that you maintain your posture as a trader and be sincere with every trade. That also includes the number of trades you are willing to make at a time. When you looking at too many things at the same time, it becomes hard for you to think wisely. So, there become potential risks of losing money.
Money management is an advantage to the traders who can use it efficiently. So, be patient with your money management method and see what changes it brings to your trade.