Forex Money Management by FX Master

Money management is a critical point that shows the difference between winners and losers. It was shown that if 100 traders start trading with a system with a 60% chance of winning, only 5 traders will be in the result at the end of the year. Despite a 60% chance of winning 95% of traders lose because of their poor money management. Money management is the most important part of any trading system. Most traders do not understand how important it is.It 's important to understand the concept of money management and understand the difference between it and business decisions. Money management represents the amount of money to be put on a trade and the risk that its going to take for this trade.There are different money management strategies. They tend to preserve the balance of risk exposure.First all, you should understand the following term equityCore Core Equity = Starting Balance - Amount positions.If open has a balance of $ 10,000 and one change then your $ 1,000 core capital is $ 9,000. If you enter another $ 1,000 trade, the core capital of $ 8,000 is important to understand what the basic fairness, since your money management will depend on this equity.We explain here a money management model that has proven to be high annual return and limited risk. The standard account is that it has 100,000 $ 20:1 leverage. Anyway, you can adapt this strategy to fit smaller or larger accounts.Money commercial risk management strategyYour a trade should not exceed 3% per transaction. It is best to adjust the risk to 1% or 2% We prefer a 1% risk, but if you are confident in your trading system then you can lever your risk up to 3% 1% chance of a $ 100,000 = $ 1,000 You should adjust your stop loss so you never lose more than $ 1,000 for a single trade.If you are a short term trader and you place your stop loss 50 pips below / above your entry point 50 pips = 1,000 $ 1 $ = 20 pips trade size should be adjusted so that you risk 20 $ / PIP. With 20:1 leverage, your trade size will be $ 200,000 if the operation is stopped, lost $ 1,000, which is 1% of its trade balance.This require 10,000 $ = 10% of you are a balance.If long-term trader and put your stop loss 200 pips below / above your entry point.200 pips = 1,000 $ 1 pip = 5 $ The size of your trade should be adjusted so as risk 5 $ / PIP. With 20:1 leverage, your trade size will be 50,000 $ If the traffic stops, you will lose $ 1,000, which is 1% of its trade balance.This require 2,500 $ = 2.5% of its balance.This 's just one example. Its trade balance and leverage provided by your agent may differ from this formula. The most important is to stick to the rule of 1% risk. Never risk too much in a trade. It is a fatal mistake when a trader lose 2 or 3 transactions in a row, then be sure that his next trade will win and can add more money to this trade. This is how you can fly your account in no time! A disciplined trader should never let your emotions and greed control his decisions.DiversificationTrading a couple currnecy generate input signals of a few. It would be better to diversify its routes between various currencies. If you have $ 100,000 balance and has the open position and $ 10,000, then your core equity is 90,000 $. If you go into a second position, then you should not calculate 1% risk of their capital base your initial balance!. Itmeans the second trade risk should never be more than $ 900. If you enter a 3 position and your core equity is 80,000 $ then the risk per 3rd trade should not exceed 800 $ It is important to diversify prders between currencies that have low correlation.For example, if you long EUR / USD then you should not long GBP / USD, as they are highly correlated. If you have long EUR / USD and GBP / USD and risk positions of 3% of trade then the risk is 6% since trade tends to end in the same direction.If you want to trade both EUR / USD and GBP / USD and the size of the standard position of money management is 10,000 $ (1% risk rule) then you can trade $ 5,000 EUR $ 5,000 USD and EUR / USD. In this way, they risk being 0.5% in each position.The Martingale and anti-martingale strategyIt is very important to understand these 2 strategies. Martingale rule = increasing your risk when losing! This is a strategy adopted by the players, which says that you must increase the size of operations for a loss. It is applied in the game follows bets $ 10, if you lose bet 20 $, if you lose bet 40 $, if you lose bet $ 80, if you lose bet 160 $ .. etcThis strategy assumes that after 4 or 5 losing trades, your chance to win is bigger than it should add more money to recover the loss! The truth is that the odds are equal despite their previous loss! If you have 5 losses in a row, with the odds for 6th bet 50:50! The same can be fatal mistake made by some inexperienced operators. For example, if a trader started with a $ 10,000 rushes and after 4 losing routes (each is 1,000 $), your balance is 6000 $. The trader thought to have more chances of winning the trade of 5 below, which will increase ths size of his position 4 times to recover its loss. If you lose, your balance will be $ 2,000! He will never recover $ 2,000 for the balance startiing $ 10,000. A disciplined trader should never use the method of play or not want to lose your money in a short time. Anti-martingale rule = increase your risk for winning and decrease your risk when losingIt means that the trader should adjust the size of their positions according to their earnings or new losses.Example: Trader A starts with a balance of $ 10,000. Its standard size is 1,000 $ After 6 months, your balance is $ 15,000. You will set your trade size $ 1,500 trader B starts with $ 10,000. Its standard size is 1,000 $ After 6 months, your balance is $ 8,000. You will set your trade size to $ 800 strategyThis strategic high performance is for traders seeking greater profitability and preserving their balance.According beginning to the rules of money management, you should run the risk of 1% of balance . If you start with $ 10,000 and the trade size is 1,000 $ (risk 1%) after 1 year, your balance is $ 15,000. Now you have your initial balance + 5,000 $ profit. You can increase your profit potential risk of more of this benefit, while restricting the risk opening balance at 1%. For example, calcualte their trade with the following purposes: 1% risk 10,000 $ (initial balance) + 5% of the $ 5,000 profit () Thus you will have more potential for higher performance and while are still risking 1% of your initial deposit