Top 5 Forex Trading Money Management Tips for Beginners

If you think working with thousands of dollars, in a market as volatile as Forex will be easy, you are absolutely mistaken. Foreign exchange, as lucrative as it is, is also one of the riskiest ventures today. Boasting a value of over $5 trillion, Forex stands to serve as a massive platform for traders to make a good winning. However, since this market deals with currencies, there are several influential factors to account for. Be it politics, or the global economy, a country's currency sees a lot of fluctuation.

With the potential for the risk being limitless, traders need to implement strict money management measures to protect their capital. Forex trading is one such field where you can lose more than just your initial investments; with leverage and other such components, losing a trade will cause you to lose immense amounts of money. Currency trades tend to become expensive gradually, and at one point you will find yourself working with over $100,000. Such humongous amounts are no joke, and can't be lost at any cost! Forex money management is a skill you will have to master, to thrive here.

Forex Trading Money Management Tips for Beginners

Learning how to manage your investments will make you a strong trader in the long run. Here are 5 brilliant ways to do it:
 

1) Determine Risk Capital: Risks and losses will be a bridge you have to cross at one point or the other. Foreign exchange houses an interesting irony - without taking risks, you can't make big profits, and risks often lead to losses! So no matter how hard you try, some trades can just not be won. A good approach to this reality is by allocating risk capital prior to trades. Essentially, you dedicated a certain portion of your investment to lose. 

This makes you stronger mentally, in the event of a loss, and allows you to move on from a bad trade better.
 

2) Place Proper Stop-Losses: Brokers provide you with these wonderful mechanisms called stop-losses; all you need do is place them aptly and the magnitude of a bad trade can be toned down significantly. Stop orders are placed at points where you think a trade might go awry. With these orders in place, you can trade worry-free; whenever a loss of a particular threshold has been made, the stop-loss will automatically withdraw your position from a trade. 

Similarly, if a bad trend is observed, it will do the same, ensuring you don't suffer expensive repercussions.
 

3) Don't Trade For The Sake Of It: Trading to make up for lost money, or simply out of overconfidence, can be the worst mistake you make. Forex trading can be a taxing domain, with several trades adding to your stress. Ultimately this bottles up and results in overtrading - a trader's biggest enemy. Being driven by emotions will lead to you investing blindly, under unprofitable conditions, and in a risk-filled environment. Similarly, running around with too much confidence can also end badly. 

Overconfidence can be a blinding force, not letting you see the warning signs as you proceed headlong into disaster. Take time to cool off, understand that losses are inevitable, and approach trades with a calm mindset. Always have a clear Forex trading strategies to make better investment and returns.
 

4) Wrap Your Mind Around Leverage: A common myth you will come across Forex trading in Pakistan is that you win more when you invest more. This belief causes traders to go all-in with their investments, and pair it with huge amounts of leverage. Though a crucial part of Forex leverage isn't something to be taken for granted. Working with this borrowed sum is a risky endeavor. Agreed that leverage does allow you to hold higher positions, and make trades of greater value, but at what cost? Overleveraging can lead to you having to bear the burden of more than just the money invested. A leverage of 1:100, with a trading capital of $500 lets you trade up to $50,000. However, when this trade is lost, you don't lose just $500. You lose the entire $50,000. 

Keep that in mind before delving in. Leverage in safe amounts, and rely on strategy, not capital!
 

5) Don't Trade Instinctively: "I feel that this move might work out." - It probably won't. Instincts are a guiding light at times, allowing us to make decisions we otherwise wouldn't, seldom against our favor. In trading, however, instincts carry very little weight. Forex is a field that relies heavily on strategies and analysis. An educated trader is more likely to succeed than an instinctive trader! Make trades after ample research. Devise a strategy that goes well with your trading style, one that works best with your selected currency pair. 

Technical, fundamental analysis and Forex money management will play a vital role in determining the outcome of your trades!
 

A mighty profitable field today, conquering Forex trading in Pakistan is every trader's dream. Assisted by the right broker, it is undoubtedly achievable! Call WesternFX today, and avail our world-class brokerage. Be it strategies or platforms, day or night, we will assist you with every requirement, and ensure you are loaded from head to toe, to go out there and emerge victoriously!