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Reducing the risk of losing your money by managing your Forex Trading account is referred to as risk control and money management.
The best and straightforward method of money management and risk control that can be used is to simply risk the same small percentage of your account on every deal that you do. This means that if you risk one percent of your account on every deal your account will easily be able to withstand more than one hundred and fifty negative deals before you lose your entire account. It is more than one hundred as the one percent risked per deal is based on a smaller account balance the lower your account balance goes.
Very few Currency traders use this sort of risk control and money management.
The lower the percent the far better it is for your Currency trading emotional health. You will rest far better and be more relaxed for anybody who is risking half a percent of your account than if you were taking a chance on five percent of your account. Your account will be wiped out after just over twenty negative deals if you use five percent . You can have over three hundred deals before your account is wiped out if you use a half percent.
Please bear in mind that you will not make money with an unsuccessful forex trading technique or system anyway but it is possible to lose a lot of money with a successful forex trading method if your risk control or money management is poor.
The challenge is that Forex traders are in a rush. They would like to double their account frequently and rapidly. It is impossible to reach these heights in a short time with these low risk percent’s. You will thrive and stay hanging around in the long however with these low percent’s.
Lets take an instance of a the trader is beginning with trading capital of ten thousand dollars and risking one percent per trade and making one and a half percent on winners. On average the traders success rate is sixty six percent and three trades are made a day. So on average he will have one loser on a daily basis and will have two successful trades. The results will be the following. One percent of the capital of ten thousand dollars is one hundred dollars. He would make one hundred and fifty dollars per winner so the account will go up by two hundred dollars a day initially. Two percent on capital initial capital. The next day however he will be risking one percent of ten thousand two hundred dollars so the daily gain will increase every day.
The trader will make a half a million dollars after a year of trading for two hundred days. So don鈥檛 under estimate the power of risking a small percent of your trading account over the long run with a reasonably successful trading technique.
The earning would drop off to thirty four thousand if the success rate was only fifty percent, five hundred a year but it would still be nice profitable. The annual earning would be sixty three thousand if the trader made as much on winners as on losers at a sixty six percent success rate. Forex trading risk control and money management in trading contests
Forex money , Forex money management, Forex money
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