There is a method that all successful traders use, and it’s no secret. It’s called money management.Money management is not some vague industry lingo – it simply means the knowledge and skill of managing your Forex trading account. As simple as that may seem, it’s the key to a long and successful trading career.
And yet it is often forgotten or neglected in the thrill of the trade. We’d like to take this opportunity to lay out some ground rules by which you can effectively manage your account.
Don’t go looking for the Big Win; it will most likely result in a big loss. Successful trading means consistent trading, where small wins amount to large long term profits.
Never assume that all your trades will be profitable, and plan on losses.You should only risk a small percentage of your total account balance on each trade. This simply minimizes your risk, so that even if you end up losing your entire investment on a trade, it doesn’t have a critical effect on your account balance.
The recommended amount is 2% of your account balance per trade.More aggressive traders go as high as 5%, but never higher than that. It is a very important rule to keep, since the lower your account balance drops, the harder it is to rebuild it.
Using Limit Orders
Learn to use the Stop Loss and Take Profit orders effectively. These orders protect your investment and realize your profits. They are very simple tools that can make all the difference to your account balance.
Size of Trades
You are suggested to open small trades, because in the case of a losing trade, you can then open the opposite trade with a bigger investment or higher leverage, thus compensating for losses.
Practice with Virtual Money
Use virtual money mode for practice. One of the unique features of eToro is that our platform provides you with a practice environment. Virtual money mode works exactly the same as real trading mode and uses the same real time rates, with the small difference of no risk involved. We recommend using the practice mode to get to know the platform and gain Forex trading experience.
And even after you’ve begun trading with real money, it is the perfect place to try out your trading strategies. There is no point in risking your money to test out a possible theory, when you can do so with the same success minus the risk. After seeing that your strategy is consistently successful with virtual money, you can try it out for real.