Money Management is one of the most important aspects of forex trading. However, many traders often ignore and misunderstand Money Management rules. Acording to Finance Magnates, having a proper money management technique is to ensure that you can remain in the markets long enough to become profitable, because when the money is gone the game is over.
Check out 5 the most simple and popular Money Management among traders:
1% rule
The Money Management rule with 1% Rule states that you should not risk more than 1% equity in trading position. For example, if you trade with a capital of $ 1000, then based on 1% Rule. Do not allocate more than $ 10 per trade. It sounds simple, but its application can be quite confusing.
Risk / Reward Ratio
The concept of Money Management which is generally considered the most ideal to use a risk/reward ratio, specifically 1: 2. This Money Management rule means that if you dare to bear the risk of $ 10, then ideally you can make $ 20 if you profit. With a risk/reward ratio of 1: 2, every time profit can cover one previous loss while earning a profit. With this, you can reduce losses little by little and get profits. As long as the Win Rate of the trading system that has been made is at least 60%.
Use Large Leverage
This Money Management rule is profitable for traders with coins, but it is actually quite controversial. In general, large-capitalized traders tend to use low leverage in the dozens. However, small traders with capital under $ 10,000 usually use leverage of 1: 100 or more in order to get a profit.
Trade Pairs with Low Spreads
Many traders choose the pair currency to trade at random, without realizing that such a decision can have a big impact on the money management that is carried out. For example, trading on exotic pairs can cost spreads of 50 pips or more. Imagine how difficult it is to reach profit targets with such wide spreads.
Setting Realistic Targets
This may be the simplest Money Management rule, but many traders ignore this rule. This is because many traders dream of sudden riches, the trader is targeting a 100% return in a month.
