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Money management and the degree of its importance

  • Aug 09 2021
  • by
  • Analyst AZA
Money management and the degree of its importance

Money management and the degree of its importance

The main reason for the drain of the deposit of most beginners is the fact that they ignore the basic money management techniques - a set of rules that enable players to take precautions - to trade safely, moreover, it is very effective in the result. Almost every professional trader will point out to you that it is almost impossible to achieve success in the foreign exchange market without following the rules of money management. And therefore, they should be adhered to by every trader, and especially by a beginner who aspires to become a professional in the Forex market. If we talk about the concept, money management is a list of principles - a set of rules that provides an opportunity to manage capital with minimal risks. One of the most basic tasks is to achieve the most favorable regime for the distribution and further use of the player's funds: all this is done with the aim of a high financial result. Through the use of money management methods, a trader can stabilize his activities and reduce the potential amount of losses. So, money management allows you: -to conduct trade as long as possible; - helps to limit the potentially permissible level of risks; - quickly returns financial losses. Analyzing and trying to understand what exactly money management is, it is worth highlighting five key principles that it implies. Considering all of them, the player will be able to reduce all risks of losing the deposit to a minimum, and also significantly increase his opportunities for earning income. So let's go: 1) first rule: the number of funds that can be allocated for one trade operation should not exceed 10% of the total amount of the deposit. Especially true for beginners. Consider some points as well. Namely: - in this case, the deposit is the number of funds that is in your account in fact, and not the money that was in the account initially; - to calculate the funds that are needed to invest in a deal, you need to increase the lot size (which largely depends on which pair the trader prefers). 2. Rule two: the stop loss order should not be more than 2% of the entire deposit. But this rule has its nuances: - take into account the real amount of funds, and not the original one; - for a deposit, for example, which is $ 900, the maximum order value should be an amount equal to $ 18; - the best option would be to determine the stop loss before opening a position. - if the specifics of the transaction involve placing an order at a mark that goes beyond 2%, then it is better to neglect such a trading operation. 3. The third rule: the total amount of all capital on the deposit should not exceed 20% of the total amount of money that is designed for trading. If you have several trading positions open at the same time, then the admissible possible level of risk must be divided by the number of all contracts. When using money management rules, remember that: 1) you need to be able (or learn) to find the maximum weekend deals. That is, such trading operations imply the ratio of taking profit to stop-loss orders at the 7-10 to 1 line; 2) it is worth closing orders with any, even the smallest, profit. A gradual increase in the amount is a more rational and profitable strategy than the player's desire to win huge and fast money while ignoring the high degree of risk. 3) for work, it is worth using only well-known currency pairs, or other well-known instruments. 4) do not ignore the principles of money management - learn to save your money and minimize financial losses. Successful trading!
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do not ignore the principles of money management - learn to save your money and minimize financial losses

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