Basic Money Management for Forex Trading

by : Marcus Masters

There can be and are whole books written on the topic of money management, but I like to keep things simple so I will just give you a few simple rules that you can follow to implement successful money management in your forex trading.

Actually, to make it even simpler, I believe that money management when it comes to the currency markets can really be summed up in a nice way with just one sentence:

......(wait for it)......

Make sure that you always trade the same number of lots on every trade that you make!

Ok, that's it, end of article. Just kidding, but if you were to walk away and remember just that one sentence you would probably end up making your trading more profitable on the whole.

I will let you in on a few some other aspects of good money management, but CONSISTENCY is a very important part that you should never neglect.

First off, forex traders are able to take advantage of large amounts of leverage, which greatly magnifies any profits or losses. Because of this, doubling your trading account balance is just as easy as completely wiping out your account.

The first simple rule of proper forex money management is to always fund your live trading account with RISK CAPITAL. Simply put, risk capital is just money that you do not need to survive or pay the bills.

When you only fund your account with risk capital, you will feel much more emotionally detached from that money and it will be easier for you to adhere to the rules of your trading strategy.

Something else that many novice forex traders fall victim to is over-trading their account. This will usually happen in a rage after a losing series of trades, and it is very reminiscent of a losing gambler trying to double his bets to recoup his losses, but only ends up losing more.

The second simple rule of money management is not to over-trade your account, and only enter the market when you have SUFFICIENT REASON or justification for entering.

Also realize that it is pretty unrealistic to believe that you can have winning trades 100% of the time. Losing trades just happen sometimes, so deal with it! Because even the best forex traders will still have losing trades occasially, it is wise to make sure that you always trade with a stop loss in order to minimize your losses (that is rule #3).

But more than anything else, it is important to be consistent in the amount of money that you place on each trade. Do not trade 1 lot, and then later that day trade 8 lots, as this is a sure-fire indication that you are not confident in the rate of success of your trading system.

So remember, be consistent and trade the same number of lots each time!