Just like other forms of ventures, forex trading involves a lot of management. While there are no real assets in the forex market, it doesn’t mean that you should not learn some good management techniques. A lot of traders venture into the market without taking proper training on management and they end up losing money. In the forex market, managing your account is an easy process that can sometimes be overlooked. Let us look at the various ways you can manage your money while trading currency.
- Make proper use of leverage
To start with, you need to properly understand how leverage works. In the forex market, you will get access to a high level of leverage. For each trade, you might be eligible to 50:1 or even 100:1 leverage. Such levels of leverage are risky and most beginner traders don’t know how to handle them. Leverage is used as a tool to lure in more traders by forex brokers and institutions. While you can use this leverage to make yourself huge sums of cash, the market can also go wrong. This is why every trader should learn about trading position sizes and other concepts that are needed to manage leverage.
- Always write down your progress
It is important to keep a trading journal at all times. The market moves rapidly and you need to note down some important facts and figures as quickly as possible. Even though you could do this work with tech devices, a journal is the best form of documentation. This is because your journal is never far away from you and it is also the best way to create unchangeable records. A journal is also important to note down your mistakes, progress, thoughts and other things that can be useful in your future trades. Journals help traders manage their accounts efficiently.
- Calculate the risk per trade
Knowing the amount of money you stand to lose with every trade is important. Sometimes, traders open multiple trades which are difficult to track. Day traders especially need to do proper calculations on the risks per trade because they might lose a lot of money when the market goes bad.
Even though you are used to earning small profits with scalping strategies, knowing how much you stand to lose with every trade is important because it helps safeguard your account. Even though it is difficult to lose every trade, the possibility of losing more than you can afford is always there. Traders are recommended to limit the risk per trade to only about 2% of the trading account.
- Use stop-loss orders
It is also important to use the available tools to limit the losses. The stop-loss is a particularly good tool to manage the money that is invested in a particular trade. A stop-loss is a programmable tool that is applied to the market such that an exit condition is triggered when the trade is on the losing end. Stop-loss tools are available for use with most charts and indicators. To use the stop-loss correctly, you need to determine the metrics that you want to be monitored. You can opt for a particular volatility level, a time zone or even a price target. Knowing how to correctly use the stop-loss can safeguard your account.
- Be patient with the market
While there are various tools available to use to manage your money, the most important factor to success is having patience. You should not exit the market too early nor should you wait for too long to incur losses. The forex market is characterized by high volatility and a lot of patience is needed to time the trades correctly. You must have a stringent set of guidelines that you must follow at all times. These guidelines should be designed to address how you use your time, money, and strategy. Without a plan and patience, it will be difficult to keep track of your account.
Expert traders are master managers. Time and money management are arguably the two most important aspects of trading. The subject of money management is undoubtedly complicated but it can be broken down into understandable bits. The above tips are the best to follow when you want to manage your money effectively. Whether you are a beginner or intermediate trader, you can benefit a lot by learning how to properly manage your account.