- September 2014
- Posted By Ninoslav
- 0 Comments
The ease of getting into the world of forex trading is something that a lot of novice traders take on each year. Even though there are many resources to help them take advantage of choice opportunities, there’s something usually missing from those valuable lessons.
Most lessons teach the fact that the forex market presents plenty of great opportunities for forex traders. Though, at the same time, they don’t teach how the market can take away those same opportunities if they’re not careful.
On forex money management
Like with most financial endeavors, forex money management helps most people circumvent potential problems that often stem from having a lack of money on hand to participate in trading activities, such as forex trading. It pretty much helps traders understand when ‘enough’s enough’ and how to keep their financial portfolios protected in the case of major losses.
All good forex traders have a forex money management plan. It’s pretty much required. Even though it sounds difficult, any forex trader can build their own money management plan on their own terms—and can even start using these helpful tips.
Tips for managing your forex finances
Trade with only risk capital or funds.
This is perhaps the most important tip to know about forex money management. Why?
The term capital refers to the funds that you have. When you trade in the forex market, you’ll be putting up a portion of those funds against the movement of a choice currency pair in the market. Make the wrong choice and you might lose some – or all – of those funds.
Putting aside funds only for trading will prevent you from making rash decisions and taking big losses when trading in the forex market. This capital is known as risk capital—and it’s your greatest forex trading asset.
Too much leverage isn’t good leverage.
Leverage, in the forex market, means to ‘use something smaller to control something considerably larger.’ In other words, it allows forex traders to make larger trades with a small amount of funds.
Online forex brokers give traders the opportunity to use leverage through utilizing their leverage ratios, allowing them to control certain amounts of money for each dollar they appoint as collateral against losses. While this gives many traders large profits, it can easily take all of their money away if they’re not careful.
Thanks to this, it’s more important to use leverage that’s guaranteed to make a profit, while not making you incur large losses. When it comes to the forex market, that type of foresight is pretty much important to keep in mind.