How To Survive And Profit On Forex: Budget Management Tips
A lack of money management skills can cost you everything you have on your trading account – even if you are good in everything else. What can you do to enter, stay, and profit on the market through money management? Read on and see.
Sadly enough, good personal finance management skill is usually a habit. If you were unlucky to miss this valuable financial life lesson in your younger years, you’re probably struggling with overspending and the lack of savings. Clearly, it is quite a problem for a trader or investor. The good news is it’s never too late to build this habit.
We analyzed the most popular money management strategies and picked the most valid tips for those who want to maximize their investment effort. For your comfort, we split them into 2 categories: survival tips and earning tips. The point is Forex newcomer strategy is based on survival: you need to stay safe and afloat at first, and profit comes later. Here’s how it works.
Mind the risks. Always.
This is a #1 tip for anyone who is getting started on Forex. Long story short, you must know how much money you’re ready to risk on a single trade. Normally, the upper limit of your risk per trade should be 2% of your trading account. It’s a good idea to use a trading calculator to see how profitable a particular trade can be. Risk management is crucial if you don’t want to end up making a series of losing orders and wasting your entire balance.
It’s a good idea to use stop-losses for each and every trade you open. It will safeguard your investments from unpredictable market moves: just set your stop-loss order not to exceed more than 2% of your trading balance, and you will stay on budget regardless of the stormy market. You can try equity stop, volatility stop, chart stop (technical analysis) or margin stop depending on what you need to balance.
Deal with your emotions
Traders hear that a lot: don’t let your emotions take control over you, because this is what pull most newcomers away from the market before they even make their first profits. Stress, tilt and greed will be your worst enemies, so make sure you learn how to handle them. Moving stop-losses when a trade is already open, exiting early, or going too far with leverage are typical signs of an emotionally unstable trader.
Use leverage… discreetly
Leverage is an ultimate profit booster, but it should be treated with caution. Along with the potential of magnifying your profit, it brings along increased risks. Using high leverage is probably not the best idea for a newbie, but once you become more confident, it can induce fabulous profits that you’ve been imagining when entering the Forex market. Take your time to determine your position size and leverage based on the stop-loss in pips in order to avoid significant losses.
Place appropriate take-profit levels
On Forex, your reaction speed can mean the difference between success and failure. Particularly, you should know where to close your position in advance once it gets profitable – this is what take-profit levels are all about.
Let's face it: managing your money flow is sometimes harder than actually making money. Meanwhile, the decent operation of your funds induces higher earnings over time. Have no fear – we all make financial mistakes that leave us wondering where all the money went. Just make sure you take the right steps to survive your first months, learn the mechanisms and play with the strategies, and earn as much as you would imagine when came to Forex for the first time.