Forex Money Management

Why is it important? Well, we are in the business of making money, and in order to make money we have to learn how to manage it. Ironically, this is one of the most overlooked areas in trading. Many traders are just anxious to get right into trading with no regards to their total account size. They simply determine how much they can stomach to lose in a single trade and hit the “trade” button. There’s a term for this type of investing….it’s called GAMBLING!

When you trade without money management rules, you are in fact gambling. You are not looking at the long term return on your investment. Instead you are only looking for that “jackpot”. Money management rules will not only protect us, but they will make us very profitable in the long run. If you don’t believe me, and you think that “gambling” is the way to get rich, then consider this example:

People go to Las Vegas all the time to gamble their money in hopes to win a big jackpot, and in fact, many people do win. So how in the world, are casino’s still making money if many individuals are winning jackpots? The answer is that while even though people win jackpots, in the long run, casino’s are still profitable because they rake in more money from the people that don’t win. That is where the term “the house always wins” comes from.

The truth is that casinos are just very rich statisticians. They know that in the long run, they will be the ones making the money—not the gamblers. Even if Joe Schmoe wins $100,000 jackpot in a slot machine, the casinos know that there will be 100 more gamblers who WON’T win that jackpot and the money will go right back in their pockets.

This is a classic example of how statisticians make money over gamblers. Even though both lose money, the statistician, or casino in this case, knows how to control their losses. Essentially, this is how money management works.If you learn how to control your losses, you will have a chance at being profitable.

You want to be the rich statistician…NOT the gambler because in the long run, you want to “always be the winner.”

So how do you become this rich statistician instead of a loser?

Risk to Reward

Another way you can increase your chances of profitability is to trade when you have the potential to make 3 times more than you are risking. If you give yourself a 3:1 reward/risk ratio, you have a significantly greater chance of ending up profitable in the long run. Take a look at this chart as an example:

In this example, you can see that even if you only won 50% of your trades, you would still make a profit of $10,000. Just remember that whenever you trade with a good risk to reward ratio, your chances of being profitable are much greater even if you have a lower win percentage.

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Being a Calculated Risk Speculator or Just a Gambler

He or she, who is known to gamble on horses, or dogs, or other sporting events etc., is often branded a persona non grata in certain circles.

However, if a person speculates on buying and selling securities, foreign currency, or property, their classification would point to a persona grata.

Both cases are of course a form of gambling dressed in different clothing. In both cases, there is a possibility of risk loss or the possibility of bigger gain. The need to arrive at an opinion without having positive evidence to back it up is equally there. So is the problem that complete facts are hardly ever disclosed, to enable the finding of a certainty.

In spite of these hurdles, in the case of property and foreign currency buying or selling, the chances of getting it right are better as opposed to finding the outcome of a horse or a dog race, or a football game. Getting involved is also less of a worry, because even if you get it wrong, you still have that house or that other currency you bought. The result is over only when you say, since these investments can eventually regain value, and actually show a profit. Backing losers in racing and other forms of gambling can mean that for the serious or occasional gambler, the money is dead and buried.

Of course, some gamblers attach a lot of importance to the thrill effect of their bets. There is no doubt that betting on sport events, cards, or many casino games can be thrilling, but so is the constant movement of the value of currencies. That wheel goes round and round nonstop, but you can get on and off whenever you like. There are many foreign currency exchange companies ready to let you operate, offering very good rates.

Never think of a bookmaker as an enemy whom you have to beat, your selection may be the one he also wants to win. Also, remember your foreign currency exchange office as a friend that makes it possible for you to play at good currency rates. You are putting your wits against a market that has no financial interest in your winnings or losses.

A realtor has equally no interest to see you lose any money. On the contrary, he likes you to be happy with the purchase of your property. Even if the prices should go against you, he knows that in due course things will change.

A speculator in the foreign currency game increases the chances of success by keeping in touch with as much relevant data as possible, which means that there is never a dull moment. The same applies to a property speculator. By having to constantly study the market and world affairs, the person becomes necessarily rather well read and interesting to talk to. Amongst other things, that gambler is a persona grata.

These days, more and more gamblers turn to the forex game. It keeps them amused as well as thrilled. Instead of a horse or a tennis star etc., they are the actual performer. There is little doubt that the well prepared person has the chance to prevail.
The currency market is not a geared slot machine. It has inexhaustible money to hand out if you get things right, and does not care if you keep winning, should you be clever enough.

Who knows, you might be champion material.

OPEN ACCOUNT NOW.......

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