Monday is the primary thing in every trade and no matter what you are doing in the market, if you don’t have a backup plan or a strategy to fall back on, it will create problems. In simple terms, money management is the plan that you chalk out about the sensible use of the money that can minimize your loss, assess your situation in case of unfavorable circumstances and make sure that you have a pathway to tread on. Compared to risk management, one must not be confused and understand that money management is all about securing your money and making sure that you use it wisely, and the former is the analysis and assessment of the risks involved.
Trade when you can afford:
As a beginner, the concept of trading can be confusing and complex as there are a lot of things to get a grasp on which can be quite difficult to fully understand. The primary issue is with the money and its usage in the trade. This is the foremost thing that many beginners tend to overlook when they’re considering investing. The capital money that you are willing to invest in the market should not just belong to you but you should afford to lose it just in case the trade wasn’t favorable. Borrowing money to trade is something that you must avoid.
The amount of risk:
The forex market is high-risk trade, so there is a need to assess everything before you start. Once you have set your eyes on the market, the next thing is to analyze and research the amount that you are willing to risk in a trade. You will have to take into consideration the personal preferences and your financial position. In this case, there are some ways of doing it. It may appear rudimentary, but the importance of it will be felt once the trader is in the market.
A specified sum:
The rules are easy in this technique. The task is to set a maximum risk amount per trade so that you are aware of the money that they are willing and allowed to risk. For instance, a trader may deposit $13,000 in his brokerage account and set a Risk of $1500 per trade. In this way, you know how much of an amount you will risk in five trades or ten.
A Fixed Percentage:
This is a little different than the amount of risk, in this rule, you set a specified percentage that you are willing to risk in a trade. Say, you want to invest $5000 in a trade, and your maximum risk is 10%, then the amount you will risk is $500.
Take it out:
This is one of the common mistakes that many traders do. If you are earning from the market, the obsession for more can lead to disaster. Once you make a decent income, take out the money, reap the benefits and come back later.
Forex needs determination, rules, and adherence to those rules. Furthermore, if you bound yourself by the rules and discipline, don’t deviate, make sure to follow them, and keep an eye on the factors that can affect the trade.