Money Management Methods
While working on Forex it is very important to distribute your assets the right way. One should take into account the money involved in operations in order to get sufficient profit and not to lose the whole deposit in case of a loss.
There are special Money management methods for it;
Absence of money management. There are traders who open positions without calculating the funds for them, approximate expected profit or possible losses. Some consider it as a kind of a trading strategy but if the amount of assets is not big some unfortunate deals may lead to complete bankruptcy.
- Multiple contracts. If a trader opens several positions for different instruments like EURUSD and EURGBP and the prices go the desired way he can get profit. Profit as well as losses can be considerable in this case.
- Fixed sum. Depending on the sum of money a trader has on account he decides what part of it to use while opening some position. In this case a trader is dealing within the limit he has set himself.
- Fixed percentage. This method is similar to the previous one but the difference is that a trader defines not the sum but the percentage value from the whole assets he is to use in trading.
- Profit and loss correlations. It is necessary to keep the history of closed operation in order to analyze them (the amount of profits, losses and their correlation). If a trader knows that his profit and loss operations go one after another or some profits are followed by a number of disadvantageous operations he is able to increase or decrease their volume in order to get more profit or to lose less money.
- Moving average. Many traders are familiar with moving average method as a signal to enter or quit the market. In this method moving averages (long and short curves) are used to determine the possible results of operations. If the short curve is above the long one it is the signal to open positions and expect profit and if the short curve is below the long one one should wait for a better moment.
By choosing one or another money management method for Forex market trading you are able to use your money the right way and to gain profit. Money management methods are used before opening a position.