Top 10 Tips On Money Management In Forex Trading

By Steven Hatzakis Monday, December 25, 2017
Money management in Forex is a missing puzzle to complete the trading plan which helps you to know where, when and how to enter, exit and trade.


Money management in Forex seems like an onerous activity that traders do not want to pay more attention because it takes time to keep eyes on their position all the time. In addition, traders sometimes need to take some necessary losses. Therefore, just a few people like to do these things.

However, if a trader cannot manage his/her money, then he/she would probably lose all of them soon or later. In other words, money management is vital in every Forex trade. Take a close look at this post to know more about it!

Two Styles of Money Management in Forex

Play small: The first kind of money management are traders who usually take small stop losses and try to regularly achieve profits from few big winning trades.

Play big: On the contrary, Forex traders may choose to make small gains and unusual but large stops. Then, they hope that smaller profits will be greater than the big gap.

10 Tips to Manage Money in Forex

1. Quantify Risk Capital

Risk capital is one of the most factors needed to be considered in money management. Before starting trading, you should take an overall look at your deposit. FX market is so risky so you might prepare yourself first. Depending on your risk capital can place an upper limit on your position size. It is wise if you do not let your risk capital exceeding more than 2% on each trade.

2. Keep Away from Trading Too Aggressively

One of the greatest mistakes a new trader makes that is trading too aggressively.
Adjusting your position size to indicate the unpredictable of your trading pair is a method to control the risk capital. However, keep in mind that the more changeable currency is, the smaller your position takes.

3. Be Practical

The reason why many people try to trade aggressively is due to their unrealistic expectations. They think if they trade more aggressively, they shall make their investment return more quickly.
That thinking is never true to successful traders. For best traders, they always set practical objectives and adhere to it through moderate ways to start Forex trading. They do not hurry to make steady returns.

4. Accept Your Wrong Doings 

Recognize when there is obvious evidence that you are suffering losses. Do not hesitate and be honest to exit quickly if you do not want to lose more money. Human nature of a man usually tends to try to fix the wrong things he has made but does not realize that it is not a wise action in some cases, especially in Forex trading. Conservative views lead to failure as no one can control the market.
Running when you make profits and cutting when you suffer losses is the golden rule of Forex trading. Remember that!

5. Prepare for the Worst

Future is unpredictable, but there were still a lot of pieces of evidence of the past. Though the past may not be repeated, It still shows what is possible. Hence, looking back on the history of your currency pair is also a good money management idea.

Carefully consider all the bad situation may have happened to you and be beforehand with what actions you would take in order to protect yourself. Underestimate the probability of price shocks happening is a way to push you to the wall. So, you need a plan for this scenario. Let me recall the price shock for example. In January 2015, the Swiss franc suddenly increased 30% against the Euro in no more than minutes.

6. Anticipate Exit Points 

Before starting trading and entering a position in FX, taking into consideration in which level and when you should stay at the upside or resist on the downside if suffer losses. By doing this, you still keep your discipline in the trade.

7. Utilize Some Kinds of Stops

Stop - loss order is a powerful tool for traders who do not have time to monitor the market. Using it is also a good money management tip because its useful function is to cut losses.

Advice for you is setting your stop – loss order not to risk up to 2% of any given trade. For example, if your trading balance is $20,000, the stop – loss could be about 40 pips. In the case of encountering a bad trade, you just lose $80 for all.

These common styles of Stops in Forex are an equity stop, a margin stop, a volatility stop and a chart stop. Choosing which kind to place is completely based on your characteristics and experience.

8. Don't Trade with No Possibility

Keep trading after suffering bad losses and attempting to turn it around is an injudicious action of traders who let their emotion stick with trading. Since they are anxious to draw back their investment after big losses.
I recommend that you should wait, adjust your position size and maybe take a break until having a high – probability trade so as to totally ensure setting all your emotion apart.

9. Use Leverage Wisely

Leverage is not only an advantage of FX market but also a useful tool to magnify profits. You can achieve more thanks to leveraging, however, it is able to work against you. Be careful with leverage, especially beginners just use this facility only when fully understand the potential loss.

10. Think Long-Term

Success or failure of Forex trading is a long-term process of performance. Do not only focus or care about the current trade and ignore your trading system’s rules. Money management will be defeated whether your Forex trading stops making profits or losses a lot of money.