Money Management and Risk Management in Forex Trading

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Even when there is immense love between the Couple still the success of a relationship depends on how much effort a person gives to make the partner happy. And the person has to also see how much he/she is getting in response. If, the persons is putting enough efforts to make the relationship work and also getting proper reward from the partner for his efforts then the relationship would work. Likewise, in Forex trading too we might have the best trading system which has given big profit in the past and is giving profit in the present. But if we are not trading our Account with proper Money management and Risk management then we are going to fail eventually. Let’s know the importance of proper Risk and Money Management in Forex.

We worked hard, analyzed many charts, many indicators, support/resistance, and came up with a good profitable trading system. We back tested it for last six months, and found it gave us profit. Great job. You are a Champion. But you are yet to win the trophy. You just gained the skill to win the trophy. But to actually be a Champion you need to play the match, overcome the difficulties, and be a winner. In our case we have to trade live, see off the difficult loss making period and come out as a profitable trader. But to be in that position we have to have proper Risk and Money Management.

Let’s say we found in our last six months testing the highest draw down we had in terms of pips in our system was 500 pips, and average net profit was 250 pips per month. It’s still a great system even though the average draw down is double than the average monthly profit. It’s simple our system ending each month on an average in profit, so even if the draw down is bigger than the profit, it doesn’t matter. Now, we need to see how Money management and Risk management can make or break our trading Account.

Scenario 1- We have 300$ in our Account, we put 0.10 lots per trade at 100 leverage where one pip is 1$.  We need 100$ to open 0.10 lots. We made 200 pips profit in first 10 trades. Great our Account is now 500$. Then the loss streak started and we faced our highest draw down of 500 pips which is a loss of 500$. Now our Account is 0$ in balance.  Our Account is wiped out. We can’t trade anymore. Then we kept on forward trading the system on paper and found out our system worked great covered the losses and ended the month with 250 pips profit. But we ended the month with 0$ when we had started with 300$,

Scenarios 2- We have 300$ and we put 0.01 lot at 100 leverage. Here pip value is 0.10$. We started facing the highest draw down in the start. So, we faced 500 pips loss or 50$. Our Account is now at 250$. To trade 0.01 lots we need just 10$. We have 250$, many more times equity than the need. We kept on trading our system, it covered the losses, and we ended the month with 250 pips profit which is 25$. We ended the month at 325$ with a 25$ profit which is 8% profit in one month. Great result.

From above we can see we traded both the Accounts with the same system same way but one Account ended with 100% loss while the other one ended with 8% in profit. So, now we see the importance of proper Money management. No matter how good our trading system is we would face a series of losses and we have to be ready for that. Never ever allow your Trading Account to go beyond 20% draw down. That’s not accepted under any circumstance. So, see what the historical cumulative draw down was as per your system in last six months, add another 100 pips for safety as our future highest cumulative draw down. Then plan your Money management. Let’s say we found our highest draw down was 600 pips and monthly average profit was 400 pips in last six months as per our system. Then we would add 100 pips to our highest draw down of 600 pips. So, 700 is our new maximum draw down. Trade like this- 0.01 lot for every 400$ in the Account, at 100/50 leverage. So, even if we see 700 pips draw down our Account would still have only 17.5% loss. And as we are ending with 400 pips net profit each month, thas 10% monthly profit. Likewise if our system gave us only 200 pips maximum draw down in last six month. Then add 100 pips to it. So, total 300 pips expected maximum draw down. Our money management would be 0.01 lot for every 200$ in the Account at 100/50 leverage. So, if we faced 300 pips draw down that’s only 15% draw down. And as the system is giving 200 pips average net profit per month then we would end each month with 10% profit. Very impressive and commendable. So, plan your Money management as per the above examples based on the highest cumulative draw down of your respective trading systems.

The 2 main objectives of proper Money Management are,  1- We need to be sure that we have enough equity in our Trading Account to keep on trading and cover the losses and make net profit, 2- We need to keep the draw down inside acceptable limit to avoid unwanted mental pressure. A draw down of 50% in Account would give any good trader sleepless nights, even when his system is very profitable on long run.

Risk Management:

 It’s taken care of first before Money management. Risk management is planned while developing a profitable trading system. Forex trading is a probability business. So, the more powerful we plan our system with high probability the better our chance would be to make profit long term. Always, keep your winning trade size minimum 2 times than the losing trade. In other word our take profit should always be minimum 2 times more than the stop loss size. For every 1$ we are risking in case of a loss we should make 2$ minimum in winning trades. That way, even if we win only 40% of our trades we would still be profitable. This is putting us in advantage even before placing a trade. But don’t use too big profit size as that might be hard to achieve with regular frequency. The best win to loss ratio is 2:1 and 3:1 ratio.

So, now with a good trading system proper Money and Risk Management we are on our way to make constant return from Forex trading.

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Disclaimer- Like any other business Forex Trading too comes with certain risk. One might lose money if not done properly. Never invest money you can’t afford to lose. That’s the first rule for any business. Forex Trading is not suitable for everyone

Various ways to make profit in Forex Trading

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There are many ways to make profit in Forex Trading. They are divided into 2 major groups.

Fundamental Trading: This is also called News trading. Every country has some major Financial and Political news coming which affects the country’s Economy, and thus its currency. Like, GDP, Unemployment Rate, Retail Sales, Factory Productions, and Home Sales etc. These are major financial news. If, they come good than expected then the currency of that country gets strong and if it’s worse than expected then the currency of the country gets weaker. Similarly, Political news like Election, Change in Government of a Country, some major changes in an important policy or some new important policy of a country, they too make the currency of the country either strong or weak. Then there is unexpected big events like earth quake, terrorist attacks, major accidents these would make the currency of the country where the event happened weak. All this means big movement in the Currency market and trading opportunities for Forex traders. To know the release date of major financial news which affects currency pair go to forexfactory.com and check the Calendar section. Only those news which have red symbol at the start matters at the Forex market for that Country’s currency and the currencies its paired with in the Forex market. Fundamental trading is not advisable for new traders.

Technical Trading: This is more famous and better way to trade Forex. History repeats itself in life like your Girl Friend scolding you for dropping the wet towel in the bed for the millionth time. HAHA. Likewise, in Forex market there are certain price points from where the currency pair makes a move to a certain direction. There are many reversal points of a currency pair after reaching which the currency pairs have reversed to the opposite direction many times in the past. We can study it through the Currency charts we get in our Live trading Account terminal. To spot such important reversal points and to find out a good trade Set up we have many tools for free in our Live Trading terminal. They are different indicators, trend line, and Support/Resistance points. If, you learn them all which is very simple then we can spot a good trade set up in advance. Thus, we would be able to plan our trade in advance and enter our trades with confidence and with high probability of winning them. And to make this learning process even simpler, our Company has many helpful learning materials by way of written materials and training videos. They are simple to understand and easy to apply in Trading. So, sign up for a Live Account now by clicking the below template. Then fund your Account and learn trading for free. The whole process is simple and fun to learn thanks to the high quality materials we have. And to make you feel even more confident we have an Account Manager for you to help you in your learning process. We suggest 2,000$ and above deposit but one can start with even 500$ to make good profit in Forex trading.

 

Trying and failing is much better than failing in not trying. Because those who try something would grow to become great.

 Disclaimer- Like any other business Forex Trading too comes with certain risk. One might lose money if not done properly. Never invest money you can’t afford to lose. That’s the first rule for any business. Forex Trading is not suitable for everyone

Systematic approach targeting 50-100% return per year from Forex trading

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Most business be the great Microsoft, or Apple or Ford all make yearly return of 20-30% after investing billion$ and doing too many things all through the year. But with Forex trading one can make 50-100% profit per year from home by investing just 2000$ or even less working few hours from home. That's the power of Forex trading. That's the reason why traditional companies like Apple, Microsoft are putting billion$ in Forex trading to diversify their investment portfolios and to make new income.

Our target should be realistic in Forex. Don't target doubling your Trading Account every month, the maximum you would do by that is wiping out your whole Account. Realistic target per month is 5-10% where 10% is the maximum. Anything above that is sheer bonus for us.

Steps to put you at advantage before each trade

1- Design a trading system based on technical parameters. It can be based on indicators, price action or trend reversal. Your trading Account comes with a trading platform which has got trading charts, various indicators to help you analyze the next market movement. There are other tools too like trend line, Support/Resistance. They may sound weird and complex. But in reality they are very simple to learn. By opening a  Live Account with our Regulated broker you would be given free training in Forex trading. There are many simple to understand Forex trading videos and written materials given to you just for funding your Real Account.  You would also have a Account Manager to work with you and help your understanding of Forex fast and fun. You just need a funded Live Account to get these high quality services.

2- Proper Risk management and Money management. Never ever use more than 100 leverage in your trading. Money management should be safe never risk more than 1% of your Account for a single trade. The rule is 1,000 units or 0.01 lot for every 300$ in the Account at 50/100 leverage. Example you have a Live Account of 3000$, trade maximum 0.10 lots or 10,000 units per trade at 100/50 leverage at 0.01 lot for every 300$ in the Account. Always and always use fixed stop loss of proper size. Stop loss should be always inside 100 pips and it vary from 20-100 pips as per your trading system. Take- profit should be minimum 2 times of your stop-loss. So, if your stop loss is 50 pips then your take profit should be minimum 100 pips. This is proper risk management. Forex trading is a probability business by having 2 times profit size than our loss size we are giving our self a big advantage to make profit long run.

3-Once we have decided the rules for your trading system; you need to test it on currency chart. You have to see if your trading rules for your system would have given profit in the past. Chart never lies, it is unbiased. So, be true to your system and back test it exactly as per your rules for at least one year. If, the last 12 months gave you 50% profit then you have a winner in hand. Also very important to see the draw down happened in the last 12 months. Draw down is the total maximum loss happened which is the difference from the highest balance in the Account to the lowest balance. Check if as per your money management your system had ever crossed 20% draw down. If, it had crossed over 20% draw down, then the system needs to be polished. Your trading system is ready when you can come up with a system which had given you average 5% profit per month in last 12 months with maximum draw down never more than 20%.

4- Now, that you have a winner, a great trading system. Give yourself a pat on your back for this big success. Now, start trading exactly as per your trading rules, risk and money management. No changes allowed in them under any circumstances. Keep on making profit and if ever your profitable trading system hits more than 20% draw down then you have to stop trading. Then you need to go back to the drawing board. Polish you trading system or develop a new system with the same requirements. Minimum average monthly profit of 5% and maximum cumulative draw down of 20% or less. If, you have found a winning system chances are very low of that system ever hitting more than 20% draw down. So, it’s like developing a good trading system once and enjoying profit life time.

The above steps might look confusing but they are actually very simple. One just needs to give this wonderful business the respect and seriousness it deserves. Then making 50-100% profit per year is very realistic.

If you want to succeed in something find someone who is already successful in that thing. We have found you successful Professional Traders to follow. By funding your Live Trading Account by clicking the below template you would get Technical Analysis by Trading Central which is the biggest organization for Technical Analysis for Forex trading. This service costs over 1000$ a month for others, but with our company its free to the Clients. Open a Live Account, fund it and take advantage of professional Trader's Analysis for free. We suggest 2,000$ and above deposit but one can start even with 500$ to make profit in Forex trading.

 

Success is opportunity meeting preparation and execution.
 

Disclaimer- Like any other business Forex Trading too comes with certain risk. One might lose money if not done properly. Never invest money you can’t afford to lose. That's the first rule for any business. Forex Trading is not suitable for everyone

Forex trading- Making 50-100% return per year from home

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Forex trading makes serious money if done properly. Money is the most important thing in the world after Love. We all need money to buy food, clothes, pay rent, fund our dreams and meet many other expenses. Whether one wants to create a full time income or have a supplement income Forex Trading does both superbly. Let's know more about Forex Trading and how to make money from it.

1-Forex Trading is the biggest financial market in the world with 4 trillion$ daily turnover,

2- Forex Market is opened 24 hours a day, 5 days a week. Thus it provides us more opportunity to make profit,

3-All the Big Banks, Big Companies trade in the Forex Market. They are called Institutional Traders. Thousands of normal people like you too trade in the Forex Market called Retail Traders,

4-Forex trading is done over the Internet and it has no operating cost. One just needs a PC, Internet and a funded trading Account to trade from home and make money,

5- There is always enough activity in the Forex Market to make a fortune in Forex Trading,

6- Making 5-10% per month from Forex trading is very realistic,

7-It all comes down to knowledge and trading temperament. If one gives quality time in mastering Forex trading and trading temperament then profit would be the obvious thing.

8- One can build a huge Fortune trading Forex with compound Interest. If, someone makes 8% profit per month then just a 5000$ Account can grow to a huge 500,000$ Account in just 5 years time. That's 100 times growth in just 5 years time. No other business can come even closer to Forex trading in terms of potential profit making,

9- Unlike other business Forex trading requires low investment. One can start with just 250$. But it’s suggested to start with minimum 2000$,

10- Unlike other business with Forex trading there is no competition or saturation. The more traders enter the Market the bigger the turnover would become. Thus it would give each trader more profitable trading opportunity.

11- Forex trading is very simple to learn. No special qualification or experience is needed here. Just basic Computer operation knowledge is sufficient to master Forex trading.

12- Forex trading is recession free unlike most other business. During recession Forex market offers more chance for profit as there is huge movement during recession. Movement means profit in Forex trading.

Knowledge is power. Join the best Forex Broker in the world. Open a Live Account for free. You would be given in depth training in every aspect of Forex Trading through videos, charts, and trading terminal for free. You would also get Trading Signals free of cost. That would give you an edge in your trading career. Open a Live Trading Account, fund it and get all our services for free. We suggest 2,000$ and above deposit but one can start even with 500$ to make profit in Forex trading.


 

If you think you can do something you are right, and if you think you can't do something then also you are right - Henry Ford. 
 


Disclaimer- Like any other business Forex Trading too comes with certain risk. One might lose money if not done properly. Never invest money you can’t afford to lose. That's the first rule for any business. Forex Trading is not suitable for everyone.

How Forex Trading works

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Making Forex trading easy to understand

Every country has its own currency. USA has US Dollar (USD), Britain has Pound (GBP), Switzerland got Swiss Franc (CHF), and then there is EURO, Japanese Yen (JPY), Canadian Dollar (CAD), and Australian Dollar (AUD). These are the major currencies in the world. We see the value of each currency changing every day in exchange of another currency. It might be in decimal but they always change. Just like your Girl friend’s mind about where you should have the tattoo to show your epic love.

Forex trading is all about trying to make profit in all those little changes in the exchange rates of various currencies with each other. We always trade in pairs in Forex trading. Major Forex trading pairs are EURO/USD, USD/CAD, GBP/USD, EURO/JPY, GBP/JPY, USD/CHF, EURO/GBP, and AUS/USD.  So, if today 1 US$ is 1.3215 EURO, it would change may be to 1.3270 or 1.3180 or may be to some other price same day. This is our chance to make profit. Same with other currency pairs. The change may be in decimal but when combined with leverage it provides great opportunity to make good profit even with little changes in the exchange rate. We can close the trade same day, next day, after few days, weeks or even months. It depends on our trading system just like if we would be yelled at or being praised depends on our BOSS.

Example of a trade- The price we see in Forex Trading for various pairs is called a Pip. In Forex Market we make profit both in both rising and falling market provided we have placed our trade in the right direction. For rising market we can make profit by being in Buy deal, and in falling market we can make money by being in Sell deal.

Let’s see on a given trading day the exchange rate of EURO/USD is 1.3215/17. The difference of 2 pips here is the spread which we give to our Broker for giving us such a big trading platform, various trading tools to trade. It’s like giving the TV remote to the WIFE as her charge for keeping the home liveable. HAHA. The first rate in a pair is called Bid Price/Rate and the second rate is called Ask price/Rate.

Buy Deal Example- After our research we think EURO/USD would rise which means EURO would rise in exchange of USD. So, we place a Buy deal. We invested 100$ for this Buy deal.  We bought it at 1.3217(Buy deals are opened at the Ask Price). We put 100 leverage for this deal. We can use from 5 to even 1000 leverage. But never one should go beyond 100 leverage. 50 and 100 are the best leverage size. But I have no clue about the best size of the Diamond Ring to keep your woman happy. No one has. So, 100$ Buy position at 100 leverage for EURO/USD means we bought 10,000 units (100$ multiply by 100 leverage).  After few hours we saw the EURO/USD has reached 1.3250/52. We see ourselves at profit of 33 pips. We had bought EURO/USD at 1.3217 and now the Bid Price is 1.3250(Buy deals are closed at Bid price). That’s 33 pips profit and at 1$ per pip we are in 33$ profit. On an investment of 100$ we are making 33$ profit. No other business can provide this kind of return. So, we closed the trade and pocketed 33$ profit.

Let’s take a Sell deal example- EURO/USD is at 1.3215/17. Our Trading System says the pair would go down which means US Dollar would get stronger in comparison to the EURO. So, we sold EURO/USD pair and our booking price is 1.3215(Sell deal are booked at Bid Price). After few hours or next day we see the market indeed has fallen down. The price reads now EURO/USD 1.3170/72. So, we closed the deal at 1.3172(Sell deals are closed at Ask price). So, we made a profit of 43 pips. So, if we had put 100$ at 100 leverage that’s 1$ per pip. So, our total profit for this deal is 43$.

We can do the same with other Currency pairs too.

Types of Orders:
There are different kinds of Orders in Forex Trading.
       

Market Order- It’s placing a Live Buy or Sell deal at the current Market price. 

Pending Stop Order- It’s placing a future Buy/Sell order after a certain movement in the same direction. Example- EURO/US is 1.3230/32; we want to enter a Buy deal at 1.3270 means movement in the same direction. So, we would place a Buy Stop at 1.3270. So, when the Ask price for EURO/US reaches 1.3270 our Buy Stop order would be triggered by the trading platform. Likewise if we want to place a Sell order when market reaches 1.3210, again moving in the same direction then we can place a Sell Stop at 1.3210. So, when the Bid Price for EURO/US reaches 1.3210 our Sell Stop order would get triggered by the trading platform. 

Pending Limit Order- It’s placing a Buy/Sell order at a future rate in opposite direction. Example- EURO/US is 1.3250/52; you want to place a Buy deal at 1.3210. We place a Buy Limit order at 1.3210, and the market fell down to 1.3210 Ask price. So, our opposite direction Buy Limit order gets triggered.  Likewise we want to place a Sell deal at 1.3280. We place a Sell Limit order at 1.3280. The market rose to 1.3280 Bid price. So our opposite direction Sell Limit order gets triggered.

Some important facts how Forex Works:

1- In a Forex Currency Pair, the first currency is called base currency; second one in the pair is called counter currency. In EURO/USD, EURO is base currency and USD is counter currency.

2- The price of a pair reads like this first one is called Bid Price and Second one called Ask Price. So, when EURO/USD reads 1.3215/17, here 1.3215 is the Bid Price and 1.3217 is the Ask price. The difference between the Bid and Ask price is the spread broker charges for providing us the trading platform and trading tools.

3-When the market is falling it means the counter currency is getting stronger than the base currency. Example- If EURO/USD fell down from 1.3210/12 to 1.3120/22 then US Dollar got stronger in comparison to the EURO,

4-When market is rising in price then it means the base currency is getting stronger than the counter currency. For example- If EURO/USD rose from 1.3100/02 to 13145/47 it means EURO currency got stronger in comparison to the US Dollar,

5-We place Sell deal to make profit in a falling market and we place Buy deal to make profit in a rising market,

6-Leverage is used to increase our trade unit size by multiple times than our actual investment amount to have bigger profit. Example- In a deal where 100$ is invested at 100 leverage we are operating 10,000 units (100$ multiplied by 100 leverage). For 100$ deal with 25 leverage it would be 2500 units.

7- When we are in a Buy deal if the market falls down then we are at loss. Similarly when we are having a Sell deal opened if the market rises up then also we are at loss. So, when to cut our loss and also when to capture our profit all depend on our trading system. The GOLDEN Rule is this- Always cut your loss short, and let your win run bigger. And always have at least 2:1 or more win and loss size for your trade. For every 1$ you might lose you should position yourself to win at least 2$ when the trade ends in profit.

Now, it’s safe to say you know more about how Forex trading works than Lady Gaga knows about make up.

Get free mentoring from a Professional Forex trading coach. Open a free Live Trading Account with our Regulated Broker by clicking the template below and get all the knoweldge and training to be a successful Forex trader for free. You would also get Free trading signals with buy and sell entry rates, stop-loss and take profit. All this for free with just a funded Live trading Account. We suggest 2,000$ and above deposit but one can start with even just 500$ to make profit in Forex.



Most of the times the best we could have done in our life was something we didn't even try owing to many excuses.

Disclaimer: Like any other business Forex Trading too comes with certain risk. One might lose money if not done properly. Never invest money you can’t afford to lose. That's the first rule for any business. Forex Trading is not suitable for everyone.