Risk management is the only way to survive during volatile market conditions and protect your account balance from crashing down.
You have joined forex trading community in order to make money. In order to make consistent flow of profits, it is important to have a plan to manage the risks involved in currency trading.
Without any money management system in order, trading turns into gambling and the odds are definitely against you. With money management, you will not only protect yourself from unnecessary risk, but also will lose less on losing trades, meaning that when things go against you, you will be able to get out of a bad trade with minimum expenses.
How much to start with?
When you start trading, it is important to figure out with which amount you are comfortable starting with. Obviously, if you are a beginner, it is not a great idea to put down all of your money in hopes you win big time and right away.
Learn to Trade Forex
Getting proper education is also crucial for your success and risk management. Get to know the basics and technical and fundamental analysis, necessary for decision making and understanding of the market. There are a lot of free resources online which provide reasonable information about trading and strategies.
If you have some cash to spare, you may consider enrolling into trading courses. If not, don’t despair. Be disciplined and push yourself to learn new thing every day. Don’t give up when it gets tough. Seek answers via google, forums, blogs and even your forex broker.
Demo Trading is Awesome
Demo trading is a fantastic way to practice fundamental and technical analysis and overall strategies. Once you have a proper training under your belt, it is time to figure out how much money to invest. To open a Demo Account with IMMFX go through this link: https://my.immfx.com/account/demo
There are plenty forex brokers to choose from with different features, trading conditions, and minimum deposit requirements. At IMMFX, you can start with as little as $50 with micro accounts and go all the way up to $5,000+ accounts. It depends on your management techniques, financial situation and ability to learn.
How much loss can you Bear?
The key of risk management is deciding on how much you can lose on each trade. If you think that in order to be successful every trade requires being successful, you are greatly mistaken. There is no trader that has 100% winning trades.
Get comfortable with the idea that you will lose several trades in a row, and that is a normal thing. What is important, though, is to keep an eye on the percentage of your losses.
If you, for example, risk losing 10% and your starting balance is $1,000, in case of 5 lose trades in a row, you will lose about $500.
If you choose to risk less, let’s say 2%, and with the balance of $1,000 and 5 lose trades in a row, you will lose about $96.
Losing around 10% of your account balance is definitely better than losing more than 40%! Besides, keep in mind that regaining those lost 40% is very difficult and might take several days (especially if there are more lose trades on the way)
Risk management is essential to your trading success. You have to protect your account with good logic and risk management because winning the lost money back is much harder than protecting what you already have.