- April 2014
- Posted By Ninoslav
- 0 Comments
The world of forex trading is a dynamic, exciting one – but it’s also a world with the potential for catastrophic losses. Because of this, careful forex money management is required. Follow the tips below to keep you from losing your head, and losing your shirt shortly thereafter.
From the very start, you need to be aware that trading on the foreign exchange market is a risky proposition. It’s possible to lose big, and it’s even possible that you will wind up losing your entire initial investment. Because of this, think of forex trading not as an investment for your future, but as a trip to Las Vegas. Certainly you’re hoping to gain a lot of money (and the foreign exchange market certainly has a better rate of return than the slots!), but know that losses are possible. Decide on a certain amount of money to use for investment that you could lose without any negative consequences. In financial circles, this is known as ‘risk capital.’ Never bet your life savings on the foreign exchange market.
Your risk capital should be an element of your forex trading plan, which you should set up before you even consider trading. This trading plan should include the types of strategies you will use, the types of opportunities you will look out for, and the warning signs that you need to divest. Once you start trading, employ this plan in every trade you undergo. This will help keep you from making rash and impulsive decisions. At the same time, don’t be afraid to alter your plan. As you gain experience with the market, you’ll naturally learn new strategies. It’s perfectly fine to integrate new information into your trading plan – this is how you become a better investor and make more money – but be sure that any alternations to your plan are based on the facts of the forex market, and not impulse or emotion.
Indeed, once you start investing, keeping your emotions in check may become one of your greatest challenges. Forex trading is a very exciting, rewarding, and occasionally terrifying enterprise, but it is essential you don’t become reactive and irrational. Know when to cut your losses on a failing investment, and know when to cash out on an investment that’s done well in the past, but is exhibiting signs of problems. Stick with your trading plan, and don’t over invest, and forex money management shouldn’t be a problem for you.