online Forex trading involves high risk and could be very deceitful, as a result, investors may loss their money in no time.For no reason whatsoever should the author of this blog be held responsible for any substantial loss.

Sunday, August 10, 2014


This in one of the most important aspect in trading. To begin with, what is Forex money management rule? This simply means; managing your volume, stop losses and other factors or parameters properly in your trading system according to your account size. "Why is it so imperative?" you might ask.
                Well the simple truth is that we are all in the Forex business to make money but it’s so unfortunate that many traders only thinks of profit making without considering the other aspect which is loss making. If you calculate the total percentage of losers in Forex trading and also trace their reason for failure in the business, you would realize that almost 70 percent of losers fail not only because of a non-profiting trading system but because they lack money management rule in Forex.
                Such trader re always anxious to get into trading without considering their total account size. Traders with no money management rule are no difference to gamblers. They don’t look at the long term profit on their investment instead they look for that jackpot. Money management rule will not only protect your investment but will make you a profitable trader in the long run. Only if you learn to control your losses, you will have a chance at being profitable. Remember, the more you lose, the harder it is to make it back o your original account size.
                For instance, you have a $1000 account size and you lose 50%, you would be left with $500.The question is, what percentage of the $500 do you have to make in order to get back to your original account size which was $1000? It’s not 50%, you would have to make back 100% of your $500 to get back to your initial account size ($1000). This is called draw down. For this example, you would have had a 50% draw-down.
                The point of this illustration is that when trading with a high percentage of your equity, it is very easy to lose significant money and a lot harder to make it back. This is more of the reason why you should do everything you can to protect your investment. Therefore, risk only little percentage of your account in each trade.
                I am not saying you should make pips that are valueless but all am saying is that you should always try to consider that profit made or that profit you are about to make as a loss then try to see or imagine the effect of the loss on your investment. If the loss doesn’t or wouldn't have too much effect on your investment then your money management rule is okay. But if the reverse is the case, it means you have to work on your money management rule according to your account size.
                However, don't forget forex trading is meant to be an investment and not a get rich quick system. If you learn to manage your funds, then you could be a profitable trader, all you will need is a profitable trading system.

1 comment:

  1. nice write up...
    Most Nigerians need to put this into consideration before going into forex trading business...if you can manage your risk properly am sure you will be able to make 30% -50% profit per annum..

    with the above , you should be able to reason that forex is not meant for the under capital trader, lets take a look at a scene where a trader has an account of 500USD to trade on , and he is willing to approach trading like professional by having a perfect money management with the aim of making 50% profit per annul which is 250 USD . how many trader will be satisfied with such an amount at the end of the year when you have a lot of bill to pay and also when you have make a living from it ...

    lets be realistic here , if you know you are not fully ready to venture into Forex trading in terms of having enough capital, following a money management rule that secure your funds, it is better you find something else to do instead of losing your hard earn money...