Money management in forex trading is of paramount importance. It is like managing your business. You need to separate your activities from your emotions. You have to have a plan for your money and how you are going to use it in your trading, and then you need to carry out that plan. The market is going to cut high and swing low. You cannot be led by any of that. You start with analyzing how the forex markets have played themselves out previously; then, you think of a plan to pounce on them; and finally, you act out your plan.
Money management means you do everything possible to minimize the risk to your money by minimizing your emotions when you are doing your trading. You cannot just give your money and expect success. You cannot take uncalculated risks. You cannot invest your money into this market with anything even remotely like being thoughtless.
Money management in forex trading depends on risk and leverage. The rule of thumb is that, depending upon your personal trading style, you never risk more than anywhere from 2% to 10% of your investment account in forex. Again and again it just cannot be said enough that forex trading exposes you to great degrees of volatility. You are dealing with global trading and national currencies to boot. You have to risk some money to make money, but you do not want to empty your bank account. It may be all easier said than done, but it is still simple.
You are not going to make a profit with every trade you make. Your strategy absolutely must embody this simple, but difficult to accept, principle. Be conservative. A "liberal" and his money are soon parted, but one who has a money management strategy and his money are not.
You cannot have any emotional attachments to your money. You have to watch it with a cold eye. Be ruthless with your money management strategy. When it comes to forex trading, being emotionally attached and sentimental are for losers. Literally. Those are the kinds of feelings that people give into and lose money with.
Another aspect of money management is watching it with total objectivity. You have to be completely honest with yourself about tracking your gains and losses. Not only that, you need to keep very accurate track of them. That is, you need to keep them in your books, in as much detail as you can. You've got to learn from your mistakes. This can at times be painful, but it does you absolutely no good at all to ignore this data.
Now, how can you learn a solid forex investment strategy without losing everything? Why not begin by using a simulation? These have become pretty easy to find online. Virtual trade first, to get your feet wet. You can learn the ins and outs and see what is useless without it costing you any money. Soon enough you will be confident enough to enter the forex market in earnest.
Click on the link below to learn more of what foreign exchange is all about.
Return from Money Management to Foreign Exchange Center