Fundamentals of money management on the Forex market

Money management system on the Forex market underlies in the solution found for the following idea: which share of your Forex deposit are you  ready to risk with in this trade? During Forex trading, a trader has to think not only about the time of Opening and Closing, but about volume of such position as well. Through an accurate calculation of maximum profit and maximum loss, a trader considerably improves his own survival chances under hard conditions of Forex market trading. Neglecting such calculations turns Forex trading into casino and becomes gambling with all the consequences implied. Building your own Forex money management system is the only possible prerequisite for a long-term profitable trading.

There is a number of commonly accepted money management rules on the Forex. According to that rules, maximum loss received from one transaction cannot exceed 5% from deposit. Such rule prevents trader's deposit from a shattering blow, which could be caused by one transaction under unfavorable market situation.

Besides, it is recommended to use diversification principle, that is to say, to avoid opening of trade in one side on markets belonging to one group (trading instruments with a similar behavior). Such rule compensates loss from one transaction with profit from another one. Based on style of behavior, it is accepted to distinguish four currency pair groups on the Forex market: Dollar zone, British sterling pound zone, Yen zone and Euro zone.

Prior to opening a transaction, trader is recommended to observe following rules:

wait for emergence of not only main signal for opening a trade, but at least one more confirming signal;

keep records, where trader shall put exact entrance price, signals used in making opening decision as well as the prices, at which position will be closed at plus or minus and conditions of closing.

Every trader has its own vision of money management approach. There is no universal method working for all. One can be stated for sure: money management can act as save boat for trader found oneself on waves of the self-willed Forex market.