Money Management or proper money management: what does a beginner need to know about risks?

Money management or proper money management: what does a beginner need to know?

Proper money management is the key to successful trading! Simple money management rules to follow when trading on the foreign exchange market.

Everyone knows that trading in the foreign exchange market is classified as a highly risky type of income, but with the right approach, this type of activity has a very high profitability.

Since trading on approximately 80% consists of psychology, then another 10% takes proper risk management.

Risk per trade: how much you put into one position from the entire deposit, how many orders you keep open at the same time - all this has a strong influence on the outcome of your trade.

To minimize risks, you need to learn the basic rules of money management.

Types of risk management

Traders usually trade in three different ways:

  1. Aggressive method;
  2. Moderate;
  3. Conservative.
  • Aggressive trading used by traders to quickly accelerate the deposit. Risks can be more than 50 percent of the total deposit amount. Drawdowns in such trading are high, but the chances of making a big profit are the same. It is possible to increase the initial capital to unprecedented heights in a very short period of time. Most often used for this martingale technique.
  • Moderate – the trader does not risk in vain, but uses an adequate % from the deposit (usually it is ~ 20 percent), but he does not put too little into transactions, realizing that he is wasting his time and “thanks” he does not want to work.
  • conservative method - This is the best option for beginners. According to the rules, for each open trade there is no more than 1%, a maximum of 5% of the total deposit amount.

Aggressive Method

Should only be used if you are confident in your trading tactics on 99%, for example if you take break even strategy, then of course you can generally earn on it without martingale.

moderate method

Suitable for those who have already “sniffed the gunpowder” and know how to handle trading terminals. There is no longer a need to trade with minimal lots, but there is no reason to risk too much.

conservative method

Basically, more than one strategy is traded on it, since the income is very small, but the risks, of course, are reduced to almost zero.

Often conservative strategies are used advisers, since the calculation of signals is carried out by an automatic algorithm and it is almost impossible to calculate each move to achieve maximum profit with a minimum drawdown.

But there is a plus in this, the adviser can trade around the clock and frees you from the need to analyze the chart, he does all this himself.

What conclusion can be drawn from all that has been said?

Usually, when a person hears the word “risk”, he starts to get scared and understands it literally, that he can lose everything.

Yes, this is true, but if you follow the rules, then the profits greatly outweigh the losses incurred.

The concept of RISK in the financial world is a set of rules that are made to limit possible losses.

For example: The trader has a deposit of 1000 USD.

If you use an aggressive method and heavily load the deposit, then he can easily open positions for half of everything he has, and it often happens that some asset is bought for the entire 1000. If you're lucky, there will be + 100% to the deposit, if not, at best, you will lose half.

But here there is a special nuance. Often, traders, being afraid that the price is going against them, close the deal with a loss, although they only had to wait for more and it was possible to make a profit. Therefore, do not rush to close a losing position if suddenly the price goes against you. We need to analyze the chart again, maybe not everything is as bad as it seems :)

If using a moderate trading type, then with this outcome, they usually lay 25% from the deposit, this is normal. If suddenly the price starts to go against you, you will have free funds to hedge the position by opening another trade and get out even and in a good plus.

With conservative trading the risks are close to zero, you open with the minimum possible funds using 1-2% from the depot. It is as difficult to drain here as it is to disperse the deposit :)

In general, from all that has been said, we can draw a good conclusion: earnings in the market (be it forex or binary options) are available for everyone and not only professionals can successfully earn money, but also beginners.

You just need to be able to handle money correctly, namely, with a deposit.

Here are the main rules to remember:

  • Don't be greedy. It is better to make a few trades, but in profit, than a lot, but get a loss.
  • The market gives - so you have to take. Always try to take the possible profit, otherwise you may not have time to exit on time and lose everything in general.
  • Always work with a fresh mind. To be “wadequate” - you should not overload yourself with a lot of open charts, 2-3 is enough.
  • Don't use assets you don't understand well. In the initial stages, use only predictable trading pairs.
  • Do not sit constantly near the monitor. Get up to rest, practice has shown that the best effect is obtained from rare trading than from frequent trading. Rare, but apt :)
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