Top 10 Forex Money Management Tips

Forex trading is no different than any other business venture: if you fail to protect your capital, your venture simply will not survive. We’ve compiled a list of our top ten money management tips for your reference so that you’re aware of the most sensible and effective capital-protecting strategies to incorporate into your trading paradigm.

1. Trade only with funds that you can afford to lose. This is the cardinal rule of trading and should require no further explanation.

2. Resist the temptation to take advantage of the liberal amounts of leverage offered by Forex firms. It’s easy to focus on the additional profits you could make using leveraged funds, but even easier to forget that if your trade goes south, you’re on the hook for the entire leveraged amount.

3. Reinvest your profits back into your trading activities instead of staking your trading activities with additional capital. Fund your account with your wins.

4. When you reach a pre-determined profit goal, transfer a pre-set amount of funds out of your Forex account and into your savings, retirement or investment portfolio. Consider this a form of personally-imposed “tax” and do this consistently and without fail.

5. If a trade becomes a loser, move on. Everyone experiences losses. Do not throw more money at the problem or wait for the trend to reverse: this is Forex, not the stock market.  If this is hard to understand, re-read tip #1. There are no exceptions, ever.

6. To the extent possible, try to control your spreads by working with a Forex dealer who provides at least some degree of price transparency regarding the spread that he gets from his bank. Avoid dealers who engage in “leaning”.

7. Remember that there’s more than one way to skin a cat. Don’t try for profits by concentrating on closing one big trade; if you find it, great—but while looking for that trade, you’ve missed the opportunity to generate accumulated profits through multiple smaller scalps. Slow and steady wins the race.

8. Losing sight of your stop loss points is the fastest way to lose your money. Always know how your chosen pairs are trending and where your stop losses lie, and always be prepared to adjust if necessary.

9. Be prepared and willing—on an extremely selective basis—to adjust your take profit and stay in a position somewhat longer if the trends, the charts, the candles and the fibs all indicate toward the same new support and resistance levels. The most important word in this tip is “selective”, because such opportunities will be the exception and not the rule. Be discriminating.

10. Design and implement a sensible investment plan, making regular contributions from your profits (see rule # 4 above). Use your Forex trading proceeds to help fund the purchase of diversified investment products that become an integral part of a portfolio you can bank on for the future.

Many a successful Forex trader has seen his account wiped out because of failure to implement sensible strategies like these. Take your losses in stride: your next profitable trade may be only a pip or two away. It’s what you do with those profits that distinguish the truly successful Forex traders from the wannabes.


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