Learn more about various markets and process live trading with STIFX

Trade multiple markets with one single account. Professional multiple trading software. Advanced resources.

Forex Money Management Techniques

One of the greatest factors that separate an experienced Forex trader from an amateur Forex trader is money management. There is a higher chance that an amateur trader with a great high-probability set-up will lose money than the chance of loss when an experienced trader has a low-probability set-up. This is because of the difference in their money management techniques. Money management is one of the most important aspects to Forex trading; with the right money management
strategies, the risk of loss will greatly be decreased. Money management basically represents the deposit of a specific position and the risk of that position. The ultimate goal of money management is balancing your risk and possible money to be made. The following a few basic techniques and principles of Forex money management:

Stop-loss orders: By issuing stop-losses, traders can prevent large losses and ensure profits. In order to prevent significant losses, a trader will set the stop-loss right below the current currency price. If the currency starts to fall downward and meets the set price, the currency will automatically sell out before price drops even more. To keep profit, stop-losses should be manually raised periodically right below the newly increased price or above the original price. This way, if the rate begins to drop, the currency will sell out before it goes below what the trader originally bought it for.

Hedging: Hedging is a great money management technique, though it is only suitable for those who are willing to make smaller amounts of profit. There are several ways to hedge, but mainly it allows a trader to make a second investment that opposes his original investment. If the trader's original investment makes money, then the second investment causes him to lose money. But in reverse, hedging can greatly lower and prevent losses if his or her original position loses
money. Hedging is one of the safest ways to lower the risk of large losses.

Don't get greedy: This is the most important principle in Forex money management. The less greedy one is, the higher chance he or she will have in making money. There is a proportional increase of risk to the increase of greed. Greed causes traders to accept risk and make unforgivable decisions. If their plan fails then they will endure severe losses. Greed also blinds a trader from fully understanding the risk and opens them to large susceptibility. One must always keep a
tight, stable, and disciplined trading strategy to be successful.

stifxonline.com |  about us  |  contact us  |  faq  |  sitemap  |  forex trading links |  forex articles  |  forex news