Managing Your Money

Money management is one of the most important lessons that you will want to master if you are planning to trade forex. Having a good grasp on managing your finances is a key component to a successful career trading forex. Having a strong background when it comes to economics and finance can be a huge benefit but it’s not a necessity for being profitable in the forex market.

Being able to really manage money while trading forex takes quite a bit of studying and understanding more about the movements of price throughout the market, how the market is structured and why and how currency values change from day to day. Having a better comprehension of these aspects, as well as others that we will mention, will prepare you in how to best mange your own money.

How Much to Invest

One of the most important rules of managing your money while trading forex is to never invest more than you can afford to lose. If you aren’t able to come up with all the capital you need to start, dedicate a small portion of that specifically to forex trading. An even smarter thing to do is even with a fair amount of money for trading, break it down into portions and only use one at a time.

The reason why you would want to do this is just in case things go wrong when you start trading. Having equal but multiple portions set aside, you can start all over with limited risks. Remember that trading is not gambling. Even though there are high leverages available, so that you can risk all of your money for a huge profit, you don’t want to risk that on luck and this type of thinking would be based on luck.

Another important aspect of this is that forex trading is a business and you need to think of it that way. This means that when you decide to trade forex, you should come in with clear goals and an understanding of what you have and how you want to use it. So when managing your money, you want to think in a business-like manner instead of gambling with your money.

Starting Real Money Trading

Before starting a real money trading account, you will more than likely want to have traded at least a month or so with a demo account. These can be found at almost all of the best forex brokers online and can be easily set up in a matter of minutes. This is where you can get a better idea of goals, money that can be earned based on capital and how realistic your goals really are.

Once you have gone through that, you will want to start with a test account in which you put only a small amount of money. The purpose in this is to have very little risk involved. A mini account or micro account would be the best idea since you will still be learning the ins and outs of forex trading. With this account, make sure you are getting stable profits and being consistent in your trading.

Using Trading Leverage

When using leverage trading in the forex market, the standard range of that leverage can be anywhere between 1:1 and 1:500. What this means is that with a 1:1 leverage with 1 lot, you would need to have at least $1,000 for the margin, plus the spread times $10, plus your stop loss times $10, plus maybe a little extra room just in case.

Using leverage is a great way to utilize the money that you have in a much bigger way. However, understanding what forex leverage trading really is needs to be done before you actually start using it. Even though you can be in control of larger portions with less money, you can also take much bigger loses as well. We suggest all traders learn leverage trading (link) before using it with real money.

Expectations of Trading

One thing that we often see with many young traders is that their expectations in the market are bigger than reality. Now sometimes this can be a good thing and make for some very profitable trades, however, more often than not it ends up coming back to bite them. They find themselves in positions that they don’t want to be in because they were too confident or just wanted too much.

Always remember that there will be many opportunities throughout each trading day, so don’t get caught up thinking you need to get every one. Be thankful for the ones that you are able to get from the market but don’t get too greedy. This is when traders make big mistakes and end up losing money instead of keeping what they already had.

Money management for forex traders is one of the most important lessons that can be learned. Once you have developed your skills by trading with a demo account and smaller amounts of money, you can take what you’ve learned and start making bigger trades. This is when your money management skills really come in handy and you can put them to the test with larger real money trades.

After you've learned how to manage your money well there is still a lot to learn about this financial market. Be sure to head back to TradForex.net to browse through all our useful information on how to become a better investor.