Forex Financial Management
What is the importance of learning about forex financial management? You are in the forex business because you expect this forex business to make a profit, so that the profits will increase and continue to grow, you must learn to manage it. There are many traders who are very enthusiastic about transacting without knowing how to manage capital or have knowledge about forex financial management. The trader hopes to get a large profit in one transaction, and they dare to risk all their capital in one transaction.
About Forex Financial Management
Then the thing that happens is they lose all capital in one transaction and go bankrupt. Without proper financial management and risking all capital in one transaction, you are more like a gambler, not a forex trader. The business that you run without the right financial arrangements is impossible to survive in the long run. If you think, risking all capital in one transaction is the right thing, then consider the results of the following research.
A study of profits at a casino in Las Vegas, Nevada, found that people gamble in hopes of getting jackpots (super large profits that are ten times the nominal value of a gambling transaction), sometimes there are some who win and there are lots disappointed. If the people (gamblers) win big, are they able to bankrupt the casino? Certainly not.
Casinos still make a profit because more people lose and don’t get a jackpot in one transaction, than the person who wins. There is a term, the city will never lose, the city can’t lose, – the house always wins. The funny thing: statistics also say that the profit of the person who wins gambling, will also run aground on the gambling table.
For example, you have a $ 100,000 account, you bet $ 90,000 in a single transaction and lose means you lose 90%, is that simple? Furthermore, in order to return your capital to $ 100,000 what percentage of the burden do you bear? Is it 90%? No, but your burden is 100%. The loss above is called drawndown, meaning you draw 90% down.
The greater the drawndown you experience, the greater your effort and effort to restore and recover your capital. The magnitude of the burden to recover capital occurs because of the shrinking factor of capital and the percentage of victory.
The following are tips about forex financial management to prevent you from drawing down, that is.
1.Set transaction risk at 2%
Set the risk of transactions 2% or greater (maximum 5%) for accounts under $ 5000, risk settings can be done with stop loss.
2. Always use stop loss
Stop loss usage mechanism
a. The stop loss position adjusts the time frame you use. The bigger the time frame you use, the greater the stop loss interval you install.
b. The minimum stop loss interval is the amount of the channel that is formed or the value of the risk per transaction that you have specified previously.
c. Do not change the stop loss value for any reason, even if the price movement approaches the stop loss value.
3. Never Over Trade
Trading with 2 lots is more profitable than 1 lot. Using 2 lots allows you to do repositioning, hedging, and other precautions. The thing you need to pay attention to is that each transaction requires a margin deposit and each margin will take part of the account.
4. Never let profit into loss
Use a trailing stop to secure your position, so that the profits in front of your eyes turn into losses. Give a place so the chart moves up and down.
5. Always go with the trend
6. No position is a position too
Not every time you have to take a position, there are times when you don’t take a position and just observe. Not taking a position is also a position.
7. Separate your account
If your account starts to increase due to a system that is already working properly, separate your original account with trading profits.