You need to manage your money when trading. The goal in forex is to make profits without risking all your money. There are a number of money management methods you can use.
Try these techniques out. Open a Cent Account, and make forex trades for as little as two cents. It’s the low risk way to learn forex trading.
No money managementSome traders don’t use money management; it some cases, it’s part of their strategy. We don’t recommend this, especially if you have limited funds. You could lose your entire deposit or even end up being bankrupt.
Multiple open positionsAs a forex trader, you may want to open multiple positions; for example, you may trade both EURUSD and EURGBP at the same time. Here are some things to keep in mind:
- Multiple open positions can magnify your profits and losses
- Your profits and losses may balance out – but you can’t rely on this to reduce risk
Invest a fixed sumDon’t invest all your money at once; decide how much you want to invest when you open a position. Risking everything isn’t a good idea; if you start to lose money, you could get a margin call.
Invest a percentageThis is similar to investing a fixed sum, except that you invest a fixed percentage of your account balance. If your account balance goes up, the amount you invest goes up as well. If your balance goes down, you invest less.
Keep track of closed positionsKeep a history of your closed positions. Analyse and act on these:
- Determine where you made and lost money
- Look for patterns – such as profit runs and large profits followed by a series of losses
- Adjust your trading strategy and volumes based on your analysis
Use moving averages
With forex trading, timing is everything. If you enter the market at the right time, you’ll make money. If you don’t, you’ll lose.
One way of determining the right time to enter is to use moving averages:
- A moving average is the average price over a number of trading intervals
- A large number of intervals gives the long-term market behaviour
- A small number of intervals gives the short-term behaviour
- Open a position if the short-term average is above the long-term average
- Wait if the short-term average is lower