Updated from its original posting on 27-12-2007
It’s not what you’ve got, but what you do with it that counts, right?
Wrong. Size does matter…in forex trading. Get your mind out of the gutter.
If you’ve got $1,000 in your account, and you’re trading ten mini lots at a time, you will quickly end up broke as a joke. One of the most common mistakes traders seem to make is entering a trade with the incorrect number of lots, otherwise known as “position size.”
So for example, if you’re trading a mini-account (10k lots) with 200:1 margin, you would be limited to 2 lots.
Most new traders think they can quickly start increasing their position size just because they get lucky on a couple of forex trades that turned out to be profitable.
Size is a double-edged sword. Size can make you big profits, but it can also cause big losses as well.
Another dumb move inexperienced traders make is increasing their position size on their next trade right after a losing trade so they can try and make up for the money lost.
This is an even bigger mistake because not only is the trader emotional because of the recent loss, but a larger position size can possibly blow his/her account.
You have to learn to decrease, not increase, your position size when trades aren’t going your way.
Let me repeat that again just in case you were daydreaming.
You have to decrease, NOT increase, your position size when trades aren’t going your way.
The more money you lose from your trading account, the harder it will be to recover those losses, and eventually you’ll be “bankrupt”.
When trading, size does matter.
Your position size should always be determined by the size of your account.
Most professional traders never open a position that risks more than 1% of their account. Some of them even believe that’s still too much!
The bigger your account and the smaller your position size, the longer you’ll last.