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Forex For Beginners

Forex Trading Risk Management

One of the most important thing a successful trader do is systematically plan his Money Management or Risk Management. Money management is about how the traders systematically decide their accepted risk level and how many lots to trade in a single trade. The risk level should be measured based on how many percent of the account you will lose if the open trade is closed. In general, it should be set not more than 3% of the account size.

How to plan the trading lot size?

For example, your trading account is $20,000. The stop loss should be triggered to 3%. Therefore $20,000 X 3% = $600. Let say the stop loss is decided at 30 pips, the pips value is $10. The number of lots to place should be calculated as follow:-

$600 / 30 pips / $10 = 2 lots

You trade 2 lots with the stop loss set at 30 pips.

If traders trade without money management, they are in fact gambling. They are not looking at long term return, instead only hoping for hitting the “jackpot”. Money management rules will make us very profitable in the long run. If we know how to control your losses, we will have a chance at being profitable.

Ready to make some pips from the Forex market? Wait ! Before you go too far, remember It is very important that you define how much you are willing to lose on each trade. A good trader always thinks about what they could potentially lose BEFORE thinking about how much they can win.

Do not forget the Trading rules that we had discussed before.