If you do not have an effective money management plan, you can’t get benefits from your investment activity. For that reason, you have to learn the following tips:
This principle is based on the amount of margin requirement for open positions. The total deposit amount shall not exceed 50% of the total capital.
The total amount of funds invested in one transaction should not exceed 10-15% of total capital. This principle helps to keep investments secure and prevent any losses.
The total amount of risk should never exceed 5% of the size of the deposit. The risk of 5% for each transaction means that in the case of price reversal direction a trader will lose only 5% of the deposit.
Total margin commitments in any market group should be limited to 20-25% of total capital. Traders are operating big sums of money, and it is always possible that a trade will turn against them. The Forex trader should know the tools of advantageous and careful trading, optimal money placement, and minimizing losses. Large trading losses should not involve a bankruptcy risk but must be covered with other profitable trading operations.
Diversification is an effective way to reduce overall investment risk. When creating an investment portfolio, the risk and profit levels of the transactions carried must be taken into consideration.
An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit an investor’s loss on a position in a security. Stop-loss order largely depends on a trader’s risk appetite, preferable trade size, and the account's leverage.
Profit/loss ratio. A profit/loss ratio refers to the average amount you can expect to win or lose per trade. Profit has to be balanced with the potential loss in case of adverse price movements. The profit/loss ratio must be at least 2:1 or 3:1, which means that for every $200 or $300 you make per trade, your potential loss should be capped at $100. For example, if your expected profit is $300 and your expected loss is $100 for a particular trade, your profit/loss ratio is 3:1 - which is $300 divided by $100.
Trading multiple positions. While trading multiple positions you need to divide your trades to trending and trading positions. Trending positions are used for the long run along with the stop losses so you can give the market room to consolidate. Generally, these are the positions that produce the largest profits. The trading positions are for the short run. When the market reaches your first objective and is near resistance or support always according to the direction of your position you can exit the market quickly. For such orders, you should use a tight stop loss. The goal here is to protect your profits and the increased flexibility from the said strategy makes a big difference in your overall trading profits or losses.
We invite you to meet Mekness investment world. You can follow the steps below to be an online investor with us.
You can fill the free demo account form on the side to open an unreal account and try the market without any risk.
You can apply to open a real account to enter the world of investment.
After depositing the initial investment you can easily start to trade.