Money management is perhaps the least realized and most important weapon in a trader’s arsenal. A large percentage of Forex traders fail because they don’t have the concept of money management firmly in their grasp. In order to constantly wager hundreds or thousands of dollars, traders have to know the potential of every penny they are risking.
Keys to managing money in the Forex market inevitably involve understanding how much can be put on one trade and how much can be lost on one trade without it affecting the ability to trade in the future.
A good way for traders to minimize profit loss and manage their money is to remember that they are not in a pool hall or casino. Unlike gambling rules, which state that losers need to wage higher bets to increase profits, Forex rules go in the opposite direction. Some traders call this the Anti-Martingale rule: bet more when you are on a winning streak and less when you are losing. Also, never bet more than 1% of your core equity (starting balance-amount in open positions).« Back to Forexpedia Index