Yea this is the most crucial. Adjusting the risk for per trade is the first step. This will help you in making the trading plans acc. to the funds you have.
A trader with good knowledge and experience can never trade without a good money management plan. The traders are well aware of risks that are involved in trading without a money management plan. The amount of capital exposure, risk, lot size etc. is decided prior to placing order in forex trading.
Money management incorporates a set of processes that forex traders will use to manage their trading capital. Money management allows traders to minimize trade losses to make them manageable. So, implementing money management will give traders an opportunity to win other trades when the existing trade goes into a loss.
Well, that’s an important thing to do. You might be too excited for your forex trading career but if you don’t know how much to put at risk at a particular time, you may fail badly as a forex trader. Just like making money, saving money is necessary so that you can keep trading.
Basically there is nothing like 100% in Forex market; so no one can make here 100% success! Suppose, You got 5 TP’s consistently by taking 1% risk, so now you have almost 5% gain from your last 5 trade positions! And afterwards, you increased the risk ratio around 5% in a single trade, and you lost! End of the day you won nothing! That’s the reason we should follow proper money management rules in our trading!
Money management is what makes the difference between a winning and losing trader. You can win hundreds of trades but if you don’t know how to protect those profits you can certainly blow up your whole account in the next trade. Having a money management plan helps a trader to focus on preserving their funds instead of only chasing new profits.
Money management is a strategy that isn’t just useful for beginners but seasoned traders as well. A trader should know how much money he/she has risked and how much is left in the trading account for future trades. This strategy helps traders minimize trade losses to a level where they can be easily managed. As a result, they can win other trades in case the current trade turns into a loss.
Money management plays a pivotal role in protecting profits made while trading forex. It is generally seen that traders blow up their accounts because of sloppy money management. Some of the basic rules that should be followed by all traders are: Setting a maximum account drawdown across all trades Assigning a risk reward ratio to all trades Using stop loss and take profit order to plan trade exit
That is a one more disputable and philosophical question about trading. I personally believe that money management is a must for a trader if they want to have consistent and stable profits over some long period of time. I mean that there is nothing 100% sure about the financial markets and the traders have to work with the probabilities. As we all know, probability cannot be 100% and there is always some room for the things to go completely wrong. So, even if you take the decisions whose success is 90% (which unreal though, but still...), 10 deals out of 100 will be a disaster. That is why, it is of vital importance to secure and hedge your budget from blowing up. That is where money and risk management come into play. The very essense of such phenomena is not to let you budget go to the hell. Surely, by following the priciples of money and risk management, you profits will not be as high as if you traded each deal with your full budget, but in such a case your money is protected from the total loss and that is a necessary practice for you if you are not a gambler but a trader and if you want to earn from trading in the long run.