Is Money Management Difficult? These Are The Forex Rules To Understand
If you are currently learning forex, then you must know money management. Money management is several rules that are made to be able to manage money properly so that it is not misplaced and useful as it should be. The point is how money can be used optimally. To learn this, you can go to The Volatility 75 Index page, that site will help you to master the forex world.
Money management does feel very difficult, especially for those who are still learning forex trading. Sometimes money management is often ignored by traders. This can happen because of the difficulty in understanding money management. Even when there are losses to blame is the trading strategy alone, regardless of money management.
When a loss occurs, people immediately fix their trading strategy, but it is not uncommon for these losses to be caused by messy money management. There are money management rules that are easy to understand and apply in forex. The forex rules that are easy to understand include the following.
Using the 1% Rule
The purpose of this rule is to prevent traders from risking all the capital used in one trade. This is done to prevent running out of capital or to maintain the nominal value of capital owned. You can only trade with an amount that is not more than your total capital.
For example, if you use a capital of $ 1000, then the amount of capital you allocate in 1 trade is a maximum of $ 10. At first glance, it looks simple, but many traders can’t practice it well, especially those who are just learning forex trading and don’t have much experience.
In practice, this rule is quite a headache for you, just like when there was a 0.1 size limit rule. this will cause a stop loss to be placed around 10 pips. This distance is too narrow and will potentially continue to invite losses. This can be tricked by increasing the capital or changing the rules to 2%, 5%, or according to capital.
Risk / Reward Ratio
Another concept of money management that is commonly used as an ideal concept is the risk/reward ratio. This concept should ideally use a 1: 2 ratio. That is, if you risk $ 10, you can earn $ 20. However, it should be noted that you can only use it if they win rate is greater than 60%.
Using Large Leverage
Usually, the leverage set by traders who have large capital is in the range of 1: 100. However, traders who are still learning to trade and don’t have a large amount of capital usually set leverage above that in the hope of getting a profit. This is supported by forex brokers who provide various leverage options, even up to 1: 1000.
Choosing a Low Spread Trading
A mistake that is usually made by those who are new to trading is choosing the wrong currency pair. There are lots of currency pairs that you can choose from in forex trading. However, not all of these currencies are profitable with low spreads.
Set Realistic Targets
Another thing that is often done by those who are new to trading is to set massive targets. Some set a return target of 100% in a month. This is not impossible, but traders are rarely able to do this. Usually, traders who can meet this target have high experience and large capital.