Money Management Principles

If you had never traded forex, it is highly recommended that you first open a demo account. You will have the possibility to trade in real time with the same prices and have the possibility to develop skills and knowledge without spending even one cent.

It does not matter how smart you are in order to be a successful trader. It all comes to the experience and practice you have accumulated thorough the years. It is crucial to invest the right amount of time to learn how to trade and how the forex market operates. This does not happen overnight.

The first and most important rule of your money management skills should be to never invest more than 3% of your capital in a single trade. It is not difficult to calculate that and use Stop Loss in order to know the maximum amount you can afford to lose from that particular trade. For example, if you open an account with 100 $, your stop loss should not exceed 3$ loss. If you open 1 standard lot then 1 pip (minimal price fluctuation) would be equal to 10$. At the same time if you open 1 micro lot then 1 pip would be 0.10 $.

Let us use a more practical example. You are opening an account with 100 USD and decided that you wish to sell EUR/USD. If you open 1 micro lot (where 1 pip is 0.10$) then you should use a Stop Loss at no more than 30 pips from the current market price (3$).

Remember that successful traders always first think about potential losses and only then about potential profits. This is why it is important to calculate the amount of money you wish to risk in a trade and use stop loss to ensure your losses do not exceed 3% of your invested capital. Such basic money management skills will save your deposit for as long as you wish and you will feel full control over your trading.