Simple rules of money management
Money management involves many issues that are related, first of all, to the safety of trader's money.
It includes evaluating the volume of investments in a certain market, diversification, finding the right balance between possible profit and loss, and therefore the technique of placing protective orders, choosing tactics after periods of failure or success, etc.
- The golden rule of online trading is to first save, and only then multiply.
There is a lot of literature that covers all of these issues in detail. But at first it will be enough to make a set of simple rules that should be strictly followed for currency trading to make any sense.
Some basic rules of money management
1. You should not invest more than 10% of your total capital into the market. For example, with a deposit of $2000, only $200 can be used to open a position on all selected trading instruments. In this way, the trader insures himself from investing too much money in a single operation. 2.
2. the trader must be prepared for losses. But losses should be minimal, ideally not more than 5% of the total amount of investment, if the transaction turns out to be unprofitable. In other words, the risk percentage for each currency in which a trader invests his funds should not exceed 5% of the total amount of his capital. That is why every transaction should be planned in advance. You should determine the location of the protective order on the terminal and calculate how much loss will result to the trader if it is triggered. And so for each planned transaction. The risk rate is the most important rule, which should be followed by the trader when deciding on how many positions he can open at once, minimizing losses.
3. When several positions are opened on one or more trading instruments, the total investment rate can be increased up to 20-25% of total capital. However, this should only be done if previously opened positions have been converted to at least lossless position, and a stop-loss order triggering on them will not cause losses to the trader's deposit.
In this case, with proper analytical calculations it is quite possible to open additional positions on previously selected currency pairs or open new positions on the profile of some currency. The markets belonging to the same group move more or less equally. This can be seen, for example, in the appreciation of the dollar, if it is going up, it is going up against all currencies at once. But - first - transfer the protection to Breakeven, and then recalculate for new orders, according to the conditions outlined above.
Using these simple rules, as the deposit grows, the amount that can be used in each transaction will increase, and this, in turn, will lead to higher profits, and the profit will again increase the total amount of investment. And so it goes round and round. But in order to keep the profits growing, you should first take care of saving the money you already have.