30/04/2021
💰 Money management fundamentals
The money management system (or Money management) in the Forex market is a set of specific rules for managing money to achieve maximum profit with minimum levels of risk. Following these rules, a trader significantly reduces the risk of losing the deposit or reduces it to zero. Whether it is necessary to follow the rules of money management is a rhetorical question. Although the history of trading knows cases when a trader managed to hit a huge jackpot, ignoring the "safety rules", however, very soon such luck ended, and the trader's deposit was zeroed out. Below we will consider the basic rules of money management, which should be followed not only by a beginner, but also by an experienced trader.
🔹 The risk on one trading operation should not exceed 5% of the total deposit volume.
This rule is one of the basic ones. It implies that before entering a trade, you need to assess the level of risk, the volume of which should not exceed the notorious 5%. If you have $ 100 on your account, then you can risk $5. This is exactly the size of the Stop Loss protective order.
🔹 Leverage must not exceed 1: 100.
Leverage is a loan that a broker issues to a trader for trading, and its size shows the size of the loan: 1: 200 means that the loan is 200 times more than the trader's personal funds. It is impossible to make money on Forex without leverage, since private traders usually do not have sufficient funds to participate in market operations. But the optimal leverage for trading is 1: 100.
🔹 The number of simultaneously open trades should not be large.
The desire to earn more immediately encourages newbies to open many deals on different instruments. But this distracts attention and prevents you from concentrating, which often leads to a sad result.
🔹 The size of the deposit must be reasonable.
An account with a small initial deposit makes special demands on the trader's capabilities, because it is rather difficult to keep and increase a small amount, taking into account the requirements for risk and leverage. Newbies usually drain $ 100 or $ 200 deposits very quickly and become frustrated with trading. As practice shows, an account of $ 500 will be optimal, otherwise it is better to open a cent account.
The market is not a casino, and you can't test your luck here. For trading to be successful, a trader must use a proven trading strategy. And, according to the rules of money management, the strategy should not be risky and take into account all the requirements for risk.
