Surviving the Market with Forex Money Management
Forex money management is crucial to making a lot of money in the forex market. This is not something that newbies to forex trading immediately learn. Even if you provide a newbie with good probabilities and a whole lot of money, if he doesn't know how to properly manage his forex fund, he will probably lose a lot of money. This is what actually differentiates a newbie to an experienced forex trader. The latter would often have an established forex money management system; such that even if you provide him with a fluctuating market, he will still manage to make money from it.
All traders need to develop their own forex money management system. They need to learn how to manage their money. Trading does not end in one day. If you are going to trade, you need to have enough money for future trade. You also need to know how to create profit out of the money you are going to use today. Sadly, many people do not bother with a system. They often view this task as an unpleasant aspect of forex trading. Indeed, forex money management would force you to constantly monitor currency positions. You would have to consider necessary and unnecessary losses. Very few traders enjoy this aspect of forex trading.
Forex money management involves understanding of losses. You also need to know the percentage of gains you need to make in order to recover losses incurred. For instance, if you lose 25 percent of your total equity, you need to earn 33 percent of your equity in order to recover your original equity value. Unfortunately, it is obvious that you need more than the amount of your loss percentage in order to recoup this loss. Indeed, it is quite difficult to recover losses once you have incurred them. This is why many experienced forex trader would advise against doubling your risks when you attempt to recover losses. Doing so would inadvertently create more losses.
You need to be familiar with loss-recovery percentage calculations. Most traders probably know the same. Unfortunately, many of these traders choose to ignore the same. They inadvertently lose a lot of money in just one trade. Often, if you would look at the root cause of these big losses - everything boils down to improper or careless fund management.
Many traders would usually start trading dreaming of one transaction that would make them millions. There are people who have indeed made millions or billions of dollars in one trade. George Soros is a legend in the forex market, but not everyone can make one billion dollars in just one day. Not everyone is George Soros. The truth is that it takes time to actually see significant profit when you trade in the forex market. This is why forex money management is very important. Without it, you could lose all your money in just one day.