There are many stories of traders who have made big profits from smaller accounts. And, mostly new traders are drawn to such stories. Here, you will get an insight into the mind of a successful trader and get the right method of managing your money.
You may think that this is just a coincidence or a streak of luck. If you are looking for instant profits overnight, by engaging in a huge number of trades, then you are simply engaging in large amount of risks. If you follow this strategy, it wouldn’t take long to accumulate huge loss from a large number of trades, and find yourself financially as well as emotionally disturbed. It requires specific methods plus right judgment in trading in order to perform money management in Forex trading.
There can be drastic effects on the result when the account is overexposed or underexposed. Therefore, the first step you should take is to come out with trades that are of appropriate size. It should also be known that this is not going to be a one-time procedure, but it is going to be a continuous process as variable factors like stop loss, account size and pip value continue to alter.
Prior to considering the formula for the calculation of the appropriate trade size, it is important to consider risk, as it is very crucial. What is the ideal risk per trade going to be? This depends upon the trader, and a successful trader would go for 2% to 3%. As per my opinion, I would suggest to keep the upper benchmark for risking to be at 3% for each pair of category. More about Trade Category can be read at Risk Management.
Try this : Forex Money Management Calculator
When the Risk% has been determined, the next step is to calculate the amount of Risk by multiplying the percentage with the account size. For instance, if your risk% is 3% and your account is of size $10,000, then your overall risk amount is going to be $300.
The next step is to fix the stop loss. You may be using any trading system, but by now you would also have begun to realize your Stop Loss. For example, consider your Stop Loss to be 100 pips. And, then it is important to find the Pip Value of the trading pair. This can be found by looking at the trading platform of your broker. Onthe MBT trading platform Pip Value is represented as Mini Lot below the Position window or Watchlist, while in FXCM platform it is represented as Pip Cost below the window that shows Simple Trading Rates displayed in Standard Lot.
Example Forex money management table for micro account :
The Pip Value in MBT in the above-mentioned example comes to 1 giving Mini Lots Trade Size. But, in FXCM the Pip Value would come to be in Standard Lots. It should also be known that the resultant Trade Size can also result be in fraction, and not always a whole number. In such a case limit yourself to a whole number and don’t go up. For instance, if the 2.35 Mini Lots is the resultant Trade Size, then you should take just 2 Mini Lots. However, when a broker lets you to trade on fractions, then there is no need to consider this issue.
See this example :
You have $ 20 000 accounts and you have 19 bad trades. See picture :