In this article, I will be focusing on the importance of Money Management in Forex trading. Successful Forex traders have a larger edge and better money management than unsuccessful Forex traders.

After observing hundreds of amateur Forex traders, I began to discover that their failures can be explained almost exclusively by their poor money management practices.

When trading, the importance of Money Management is underestimated by a lot of Forex traders. It is of much more importance than entry and exit decisions (=timing decisions) will ever be. Very few indicators are better than a coin toss, and if they are, the edge is eaten up by slippage and commission.

Money Management in Forex trading is also called asset allocation, position sizing, portfolio heat, portfolio allocation, cash flow management, trade management, capital management and position management, size management, bet size selection, lot size selection, or even risk control, equity control, and damage control.

Money Management is managing the position size while Risk Management is about managing losses and open profits (unrealized trading returns). Actually I don’t like the term ‘Money Management’ in Forex trading as it also has a very general meaning (it’s also used to describe the “process” of saving, those “learn valuable skills” pages talking about piggy banks and how to teach kids about pay checks).

But ‘Money Management’ tells a Forex trader that he should concentrate his research on how to optimize capital usage and to view his/her portfolio as a whole.

Actually there are (at least) 2 steps to implement proper Money Management:

1) Position sizing is the determination of what (fixed or non-fixed) fraction of a portfolio’s total (or again fixed or non-fixed fraction) equity to risk on each trade expressed in Dollar-, Euro-, Yen-, or Swiss Franc-denominated currency values.

2) Position sizing, on the other hand, is the calculation of how many contracts I should hold in my position once a trade entry is signaled, which basically is a function of the Big Point Value (the number of dollars that a 1-point price move represents) and a rounding algorithm as the number of contracts/stocks can’t be traded in fractions and must be cut down to a whole integer.

Let me show you a clearer picture of money management. Suppose you and I bet $0.20 on a coin flip: Heads, you win, Tails, you lose. Suppose you have $10 of risk capital and I have $1. Even though I have less money, I have little to fear, because it would take a string of 5 losses to wipe me out, unless two brokers get between us and drain our capital by commissions and slippage.

The odds will dramatically change if you and I raise our bet to $0.50. If I have only $1, then I can only afford to lose 2 times. If you have $10, you can afford to lose 20 times.

Many amateur Forex traders take wild risks with a poor money management system. When they lose on their trade, they increases their lot size or position, hope that they can recover their losses made previously and make some profits. This action has caused their capital to be more exposed to risks. This lesson won’t automatically build wealth, but will bring a wealth of experience and knowledge, which will prove invaluable to you if both understood and applied properly. It will steer the course for your success in the global financial marketplace.

If you are too lazy to dig deep to both find and understand this lesson, I would advise to either refrain from trading.



By: Sebastian Sim

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Can someone with experience in this area please answer?

How does ‘currency trading’ work? What kind of brokerage account is needed? Do the standard brokerages houses do this? I have an account at Schwab.

What is Forex? How do I buy currency contracts?

Thanks for the help!

I earn Thai baht, and it’s gaining buying power. How can use this market fluctuation to my advantage in regards to exchanging currency for a profit? Thanks for your time!

Most novice traders either choose a currency trading course or a Forex robot but which is the best method to achieve Forex trading success for you – let’s take a look. The Forex robot looks the better option on the face of it because unlike a course you don’t have to do any work – you simply pay your couple of hundred dollars or less plug it in and sit back as the money rolls in but it should be obvious to anyone with common sense that Forex robots dont work and ALL lose money. If you really could get an income for life for just the cost of a night out everyone would be trading and no one would work!

The fact is 95% of traders lose money and while you can win at Forex trading you do need to learn skills as you do in any other business and this is where a currency trading course can help and can lead you to success.

The best courses come from traders and they give you simple proven tools that work and will continue to work and most, will demonstrate how profitable they are in daily currency updates. You get to see how good the strategy is and also you will build up confidence when you see it perform.

Throw in unlimited email support and you have a total trading solution to get you on the road to big Forex profits quickly. As these courses normally come with 100% money back guarantees, if for any reason you decide currency trading is not for you, you get your money back so you learn with no financial risk.

If you want to learn currency trading the right way, forget the cheap Forex robots which don’t work and use a Forex course which can lead you to success and while you have to make an effort the rewards for the effort you make are enormous.



By: Michelle Hendrix

FX360.com is the new site of renowned currency analysts Kathy Lien and Boris Schlossberg. Get their daily insight on what moves the currency markets. Get the same quality forex news and analysis that makes them regulars on CNBC, Bloomberg and SKY TV. www.fx360.com

Many Forex traders start trading live too soon. They don’t have any understanding and learning of good money management rules. As a Forex trader, you need to develop a few good money management rules. Practice them on your demo account before starting live trading. By developing your own money management rules you are comfortable with, means how much of your money you are willing to risk on one single trade. You also need to determine how many contracts per trade your risk tolerance allows?

The important question is how you can improve your investment results by making small changes to your trading strategies. Proper money management can be the difference between becoming a successful Forex trader in the long run or an unsuccessful one who decimates his/her account in a few weeks.

Have you ever played poker or watched it being played online or on TV! If you have, then you will never see good poker players play all their cards on a single bet. Good poker players know that by risking only a small amount of their money on a single bet, they can win or lose but will still play the next hand. If they put everything on the table on a single bet, they will have to be 100% sure of winning, an impossible thing. You can never be 100% sure. Life is the game of probabilities.

You must know this that currency trading is far more complicated as compared to playing poker. You will be dealing with hundreds and hundreds of variables that can affect the markets. What to talk of only 52 cards. You must understand and implement good money management rules in order to succeed at Forex trading in the long run.

You can fall into many pitfalls while trading. As a trader you should constantly guard against two emotions. Greed and fear! In case you are on a winning streak, you will become greedy. You would want to risk more to make one big win and you would want to strike it rich in one or two big trades. This will make you risk more and more of your money on a single big trade.

When you lose a trade, you become afraid to risk enough of your money on the next trade. Fear takes over and impairs your decision making, making you lose confidence in your judgment and decision making. Let’s see how fear and greed can play havoc with your trading.

Let’s assume you have a run of successful trades. You become overconfident. You are not satisfied by risking only 2% of your equity on a single trade. You want to risk more on the trade because the more you have in a trade, the more you will make if you are right. You increase your risk to 5%. You win. You increase it further to 10%. You again win. Now, you finally decide to put 25% of your equity at risk on the next trade. Misfortune strikes, your successful run comes to an end. You lose.

Assume you had a $100,000 trading account. You had foolishly risked 25% or $25,000 on one trade that you desperately wanted to win. Losing $25,000 means you have only $75,000 in your account left. How much you need to make to get back the original balance of $100,000. You need to make $25,000 again to go back to the original balance. It means you will have to make 25,000/75,000= 33%. So you risked 25% but now you need to make 33% to get back your original amount.

Many investors once they lose a trade become desperate and try to risk more to recover their original loss. They end up losing more and more and very soon those investors destroy their accounts. Most of them are out of trading forever soon. There are other traders who try to reduce risk even more on making a losing trade; eventually they lose any opportunity for meaningful growth in their accounts.



By: Ahmad A Hassam